My Approach to Day Trading
Stockscores.com Perspectives for the week ending April 24, 2017
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In this week's issue:
In This Week's Issue:
- Stockscores' Market Minutes Video - Resistance Rules
- Stockscores Trader Training - My Approach to Day Trading
- Stock Features of the Week - Stockscores Simple Weekly
Stockscores Market Minutes - Resistance Rules
A simple trading concept is resistance but it is often used wrong. This week, I discuss some important considerations, my weekly market analysis and the trade of the week on $EFII. Click Here to Watch
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Trader Training - My Approach to Day Trading
At the end of each trading day, I analyze all of the trades identified using my strategy. This allows me to identify potential improvements to my trading rules after looking at a large group of trades.
Before I discuss what I look at in my analysis, it is important to understand how I approach the market. I trade primarily with algorithms - a set of rules defined by my indicators and processes. I don't trade by gut feel, I instead trust math and statistics.
My first step each day is to create a watchlist of stocks that meet my first criteria using an indicator I created called an Action Candle. Stocks with Action Candles are trading abnormally in terms of price movement and trading volume.
I the evaluate the Watchlist by inspecting each chart on multiple time frames, looking for where the stock might run in to a price wall at resistance for buys or support for short sells. I score each stock so I can prioritize which ones I will watch for trades.
My computer then does most of the work, monitoring my watch list for an entry signal, either short or long. I do not leave room for my human judgment at this point, knowing that emotion is the enemy of every trader. I am trusting the mathematical analysis that I have spent countless years developing.
When the computer identifies a trade, I take the entry using formulas for position size based on the volatility of the stock. The more volatile, the smaller the position. This way, I can control risk.
Just as the Las Vegas casino has no idea who will win the next hand of Blackjack, I have no idea which of the stocks on my watch list will provide a profitable trade. I approach the market with analysis that shows that if I repeat my rules over and over again, I will be profitable. Like the house in Blackjack, I want to have a strategy that works over a large number of trades.
11 stocks gave me entry signals on Friday, 6 long and 5 short. 9 were profitable, 2 were losers. I judge performance based on reward for risk.
If I risk $1000 and make $3000, I have earned a reward for risk (RR) of 3. If I risk $1000 and lose $1000, I have an RR of -1. I expect some trades to earn and others to lose; my goal is to have a positive RR overall by limiting the size of my losses and maximizing the size of my winners.
Here are the symbols from Friday with the RR that each trade earned simply by holding until the close:
Symbol RR
COL 2.77
PPC -1
BA 0.45
PTX -2.2
RHI 1.8
EFII 4.28
MANH 2.74
MAT 3.78
IMMU 0.32
POT 0.07
SLCA 1.48
Total 14.49
For $100 of risk, the end of day profit was $1449, for $1000 of risk, $14,490. Slippage and transaction costs tend to lower this profit by about 10% for large amounts of risk, less for a small risk tolerance.
This approach is very mechanical and simple. However, no one should confuse simple with easy. It takes a good deal of practice and a solid understanding of my approach. You don't have to be a rocket scientist to understand it but you do have to work hard to learn it.
In the past few years, I have moved to a heavier reliance on computers and math for trading rather than my experience. I let my experience determine the rules and develop the strategies but the execution is more effective with the help of a computer to do the analysis and keep the emotions out of the decision making.
I am planning some webinars that will showcase this approach better, watch this newsletter for an announcement of when they will be run.
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I ran the Stockscores Simple Weekly on the US and Canadian markets this week, here are three good looking weekly charts:Back To Top
1. T.WSP
T.WSP is breaking out through resistance at $48 to new highs from a good pattern on the 3 year weekly. Support at $47.50.
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2. INTX
INTX came alive on Thursday of this week and has seen follow through to the upside this week. The long term chart shows a nice break up from a rising bottom after breaking the downward trend late in 2016. Support at $3.90.
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3. JIVE
I found JIVE late last week and reported it as a good candidate to my daily newsletter subscribers coming in to today. It moved up some more today but in the context of the 3 year weekly chart, it still has good potential longer term. Support at $4.45.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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