TI3 is first 30 minutes trading strategy which looks for quick gains on stocks that dominate first 5 to 10 minutes of trading. It allow you to profit from the morning momentum. Only suitable for active traders. And you need Trade Ideas software to find these kind of trades. Once perfected it is highly profitable setup.
Exit if a stop is hit. Always use stops. I recommend trailing stops.
Exit on 3rd or 5th day (for $ b/o) if stock does not move much post entry. Most of the momentum bursts have immediate follow through.
Exit at least 50% of position on third or fifth day at close. Have a trailing stop on remaining position to lock in profits.
After your entry next day or same day if the stock goes up 8% or more exit 50% of the position and move trailing stops sufficiently to protect profits.
Exit a stock in pre market or at open if it gaps up 20% or more after your entry next day or third day.
After 3rd day if you want to keep holding keep using trailing stops.
If you use trailing stops it will automatically get you out of position. These guidelines are based on 20 years of experience swing trading and making thousands of trades and growing account multi fold.
Setup is a set of conditions that should be present to take a trade. Basic Setups are:
1 breakouts : start of a swing move long term or short term is indicated by a b/o Breakout is a setup in which price makes a N day high. basic logic stocks move in momentum bursts
2 pullbacks: a major or minor correction in trend but the dominant trend is still up or down. Pullbacks can be short term swing setups or long term setups. Basic logic stocks in uptrend lose momentum for short period of time or momentum slows down. Enter during such slow momentum phase hoping stock will go back in momentum phase
3 exhaustion: exhaustion setups indicate end of a major trend (up or down). Exhaustion may or may not lead to trend change in new direction. Basic logic buyers exhaust themselves leading to reversal same thing on sell side. These do not necessarily look for trend change , but look for the short term bounce once selling exhausts itself.
4 pivot : setups are specific anchors which lead to buy or sell decision. It might be particular price or catalyst or level. These can be news pivots, % pullback pivots as in Fib, or volatility or range based pivots. The basic assumption is such pivots lead to start of momentum or end of momentum.
5 Support and resistance: basic logic is buyers buy at support and sellers sell at resistance. Or at the support or resistance level there is historical buy and sell pressure.
These are some of the commonly used setup ideas. If you innovate around them you can develop your own setups.
Stop mixing setup ideas from two different sources.
Stop putting bunch of indicators on a setup.
A good setup is structural in nature.
It takes you months to become good at trading a setup. Unless you are willing to put in that much effort on one setup, you will go nowhere.
In a day or a week or a month if you read blogs or watch videos of traders you will be exposed to many new trading ideas and setups.
With proliferation of blogs, books, forums, Twitter and all kinds of media easily available there is constant temptation to flirt from one trading ideas to another.
You will see charts with different indicators and there you go running after it.
If someone highlights a trade then everyone runs to it.
If some new book comes in everyone gets excited about it.
In the process several things are cursorily tried but no expertise is developed in one type of trading style or setup.
If you see traders who have been around for 10 years plus, you will see that they trade same setup over and over again.
A trading idea or setup is just a idea and unless you think deeply about it and convert it in to process it does not become part of your procedural memory. Your task as a trader is to develop procedural memory. And to develop expertise to execute that setup without any help on your own.
If you want to trade say breakout you need to develop procedural memory for trading it.
That would involve your ability to run the entire process involved in breakout trading like scanning, identifying good setup from scans, putting stop, determining position size, determining target, exiting, and so on. This is all part of procedural memory development challenge.
Procedural memory only develops after a considerable amount of doing same thing again and again using same step by step process. By doing that you develop procedural memory which becomes permanent part of your memory.
If you constantly flirt from ideas to ideas you will never develop procedural memory.
Individual trades do not matter. Learn process flows. If you learn process flow you will be able to replicate a trade or understand what is involved in finding a trade.
Once you understand process flow you will be able to build your own process template and make it efficient.
Process orientation is extremely important for developing procedural memory.
Procedural memory is a memory of a procedure. It is stored in your brain as one muscle sequence. In a flash the brain can then recall entire process.
Once you become process oriented the cognitive load will decrease.
Follow traders and people here or anywhere else only if they are transparent about their process flow.
If they can not explain step 1 step 2, step 3 and why it should be done that way you will not learn much.
Developing procedural memory is the key to becoming successful trader. Procedural memory is built through repeated practice.
But before you get to repeated practice you should have right process. Else you become good at wrong process and then you need to erase those procedural memories and rebuilt right procedural memory.
Procedural memories are enduring memories and we do not forget procedural things easily. If you learned to ride a bike as child it becomes permanent part of you.
Same way once you develop a setup specific memories they become permanent part of you.
If you understand that commit yourself to trading only one setup for next 6 month.
Most of the ideas you will see around you in trading are rehash of some few basic ideas like breakout, pullbacks, pivots, mean reversion, breadth, trend following, momentum, growth investing , value investing, contrarian investing .
Take any of these ideas and convert it in to process and trade it for months till it is part of your procedural memory. If you wake up in the middle of the night you should still be able to do the process blindly without thinking.
The way procedural memory works is by embedding a muscle or thinking sequence in your memory. A complex task involving say 25 steps is stored in procedural memory as one unit (schema) and when performing the task it is recalled in an instant.
If you want to make money trading stop chasing setup ideas and marry a setup and perfect it.
In the beginning due to lack of understanding of how markets work and how real traders make money , you can end up believing in anything. Which can lead to loss of time , money and opportunity.
First thing a beginner trader should do is to try and master a simple setup. Focusing on only one simple setup will help you gain confidence and help you develop skills faster.
Trading a setup in existing established trends is one of the good starting point for beginner trader. Once a stock established a trend it offers you a choice of breakout or pullback setups. There are many variation of these setups but they essentially look for either a momentum burst in existing trend after a period of consolidation or buy during low volatility consolidation/pullback in trends. Typically buying first pullback or consolidation after a trend is established is a simple trade setup. That also ensures you are not buying extended setup.
Simplicity is very important in the beginning phases. That means avoiding piling on too many indicators on your chart or making too many rules for your scans. Simplicity will also allow you to understand each of the indicator you use.
Beginner trader need to put themselves in situation where they have time to consider every detail of the setup they are trading and trade they are making . Simple setup will allow you to plan all elements of the trade.
Consistently trading one setup using consistent process for few months will help you perfect it. That is how a small edge becomes unique edge.
If you study the Market Wizards most took around 10 years to put together a complete method. Many blew up couple of times before that.
What happened during that period is they had many beliefs and assumptions that got shattered or changed.
Your objective should be :
1. reduce that timeframe from ten years to few months. It took me around 2 years to be profitable
2. don't blow up during learning phase. never lost original capital during learning phase. In fact multiplied the original capital multi fold
3. reject lot of hypothesis . hundreds of hypothesis I have rejected
4. find out what actually real traders use. This is the most important thing.
5. find how trades really make money.
6. Don't spend crazy amount during the learning period
7. Innovate around indicators and patterns. Obvious things do not work
8. Talk in person to real trader . You will learn more that way.
9. Get hold of actual trades of real traders with entry exit and more importantly position size to understand how they really make money as against how you believe they make money 10. Try lot of things without blowing up