A DT Trading System - swing/day trading
Not sure where this belongs...
Here’s a winning system for swing longs. It will work for some and not for others because it has both technical and fundamental aspects and requires a dose of discretion. I use this once or twice a week when I have time on my hands to look for items of interest and I usually spend about 1 or 2 hours on it. I only do this in the absence of more interesting things going on.
This is only going to work in an up-trending market. It’s up to you to decide if the current market is up-trending or not. I’m still long for now.
In summary – looking for relatively volatile stocks with volume that are in an uptrend but pulling back (stochastics)
The last part (candles) is merely looking for a sign of bullishness in the current pullback.
NOTE – DO NOT ENTER BASED ON THESE TECHNICALS. TA is just being used to find pullbacks. Stochastics is a great indicator to find something that pulled back but it is in no way predictive.
Review the list
OK – so the list will throw up some crap, it's not a perfect scan but 20% of the work does 80% of the job. You’ll maybe get 20-30 stocks, throw away those that are going sideways, recently did a double top or otherwise look a bit dodgy.
Take a look at the 15 min chart over the past 5 days – does it still look like it is starting to strengthen? Sometimes that daily bar will look strong but when you look at the day’s action itself – it doesn’t look so hot.
Review the stop loss & target.
Stop loss will be 2c below last swing low or more depending on how much you worry about Market Makers moving the market down to take out the stop loss on your 20 share order. The more cents stop loss,the smaller your position size will be.
Entry will be 2c above the current or prior bar, whichever is higher. Use a bit of discretion here – if the bar 3 bars ago looks to make more sense, then use a breach of that.
Target – well, I use the last swing high, less a few cents as my target. Of course, I expect the stock to blow through that swing high as the stock is in an uptrend. I don’t use that to figure in my calculations though. If the last swing high was $28.10, then probably better to target just below $28.
Calculate Position Size
First figure out your risk per trade. You can do all the 1% risk per trade later. For now, I’d recommend sticking to a max loss of $30 per trade, even on a $25K account.
Position size = Risk Per trade / (entry – stop).
Then figure out potential risk & profit.
Risk = Position Size * (entry – stop)
Profit = Position Size * (target – entry)
I like my potential profit to be at least 1.5 times the potential loss. You can adjust as you see fit.
Now you will be down to a handful of stocks.
Decide which trades to place
Here’s where you need to look at the fundamentals. People will tell you that you do not need to do this for swing trades, that price action alone can be used. I disagree.
Done properly, it should take you about the same time to look at a stock as it would to choose a meal & bottle of wine in a nice restaurant. The way I look at it – if it keeps me out of more bad trades than good – it’s worth doing.
Note – what you are looking for here are REASONS TO NOT TAKE A TRADE. You are not looking for confirmation of the stock that popped up on your scanner; the scanner is dumb. You are looking to find out why this thing has pulled back & if that is actually evidence of something amiss in the stock.
One way to place your trades is to put in stop market orders the day before. This is a great way to slip 20cents at the open. The markets generally open in a flurry and a stop market order is just a market order that gets sent when the price hits a certain level. That market order goes in a queue and gets filled at whatever the ask is at the time it gets filled. I have slipped 60c on an entry with a stop market order placed for the open. Never again.
Only a limit order guarantees you a price. So, depending on your broker, you can enter a stop limit order (sends a limit order when price hits a stop level) or you can watch the open and then after 3-5 minutes when things settle down, place your orders.
Once the market opens, if the price is still below your entry – a stop order is fine – you may slip a few cents but not too much as we are dealing with liquid stocks. If the open blew past your entry, then put in a limit order to enter when the price comes back down to your entry price. If it doesn’t come back down – just pass on the trade or day trade the momentum. There will be plenty more.