"Meticulous Planning Will enable everything a man does to appear spontaneous."

Mark Caine

It's Your Money. Shouldn't It Be Your Plan?

Intraday Fading 101

Suppose you want see a big move but it goes without you.  Especially for the day trader, there are times that missing the move means you miss the move.  Whereas swing & position traders can get second entries, day traders can simply entirely miss their move if it’s not taken at exactly the right time.

Does this mean that the trade is completely over or are there other options to consider?  Let’s find out together.  Suppose you saw this move 5 minutes into the day, what would you do?

Obviously hindsight being 20-20 you could have just jumped in.  However, notice the first 5 minute bar, it moves over 1/2 the overall move which means if you aren’t lightning quick you immediately have a smaller piece of the pie with no clear spot to put a stop at.

Next, you could wait for a consolidation like what happens around 30 minutes in but that only gets you a 1.5:1 RR at best if you give the proper stop, and that’s only if you’re perfect.  Sometimes, especially daytrading, the move simply goes without you.  This is why you don’t chase.  Chasing is the Fastest Way to Go Broke Day Trading.

Chasing is the Fastest Way to go Broke Day Trading.

So if you missed the move, what now?

If the move was missed, the thing to do instead of chase is to look at the longer term charts.  This will show rather quickly whether there’s room lower after a stronger consolidation (like a 15 minute) or if the better play at this point is either pass or fade.  Let’s take a look at the daily with the same 5 minute on the right side.

Same chart but a daily screenshot is now included.  What stands out against continuation?

  1. Price low is within pennies of previous pivot low (Support).
  2. The 200sma is underneath price (Support).
  3. The cloud is underneath price and rising (Bullish Daily Trend).
  4. The move is over 2.25x normal Daily Average True Range (Over-Extended).

Now let’s look at the other side.  What show’s potential continuation?

  1. All day trading moving averages are angled down (Not Shown, Lagging).
  2. Current Strength

Whenever you are taking a trade, remember you are taking on risk because your conviction is there.  If your reasons for taking a trade are ever less than reasons for not taking a trade, pass, conviction isn’t there.

To fade an intraday move, you must have conviction.  For that to happen, there should be as many of the following reasons as possible.  Always remember, if there are more reasons against you than with you, you do not have conviction, no matter how nice the trade looks.

  1. Daily Support or Resistance
  2. Long Term Moving Averages on Daily Time Frame (50 or higher)
  3. Bullish Trend Indicators for Long/Bearish Trend Indicators for Short
    • This was talked about in our Indicators 101 Section.  You can read up on that now
    • Trend Indicators like MACD, Ichimoku Cloud, and LT Moving Averages can all work well here
  4. Over Extended Ranges
    • ATR stands for Average True Range.  A stock that moves on average $1 and today has moved $2 either has substantial news/earnings as a reason or is due for a pullback.  When the ranges are extended without a news catalyst, be prepared for a rubber band effect.

 

How to Increase the Odds with a Fade

What if there was a way to instantly get a 14.28% Chance of Picking the Top/Bottom on every single trade?  By itself this obviously isn’t an edge but when added too a basket of other pieces, this can become an excellent edge boost.  How do you do something like this?  How do you gain an immediate and powerful edge on every potential fade?

I’ll tell you.  But first, I’d like you to do something for me.  This edge is real, and it’s something I’ve seen sold for triple digits yet it’s something so basic I feel everyone should be allowed in on this secret.  I don’t want you to have to pay for this edge.  But I want you in return to join the CTP Group.  This training only gets better and if you are liking it so far, you haven’t seen nothing yet.  Simply Click the Link Below and Sign-Up to join.  Trust me, It’s Worth it and it’s free.  You’ve got nothing to lose but a whole lot to gain.

Did you join?  Great, You won’t regret it.  Be sure to check your inbox and get us out of the spam section, there’s a special training for pullbacks heading your way, our way of saying thanks for joining the CTP Group.  Now that you’re part of the Group, let’s continue.

The way to increase the odds on every single top/bottom fade is by knowing when to take the trade.  There are 6.5 hours of trading time per day, that means 390 minutes.  When you look at a 60 minute chart, the charting software automatically gives you 7 bars, 6 actual timeframe bars and 1 half timeframe that is still counted as a full bar for simplistic purposes.

Put another way, there are 7 sixty minute bars per day.  This means if you wait until a 60 minute candle closes, you automatically have a 1 in 7 chance of picking the top or bottom of the day.  Mathematically this comes out to a 14.28% chance every single time.  This isn’t advisable to be overused, but when a high probability fade sets up AND the hour candle just closed, the edge can get incredibly powerful on your side.  

Let’s go back to our M example.

First Hour Candle closes, immediately have a 1 in 7 chance the Low of Day is now established.

Not enough by itself, but when adding the additional conviction reasons we stated above, what comes next is a high probability setup.

We took that setup and got out at the 382 fib retracement area, while a 50 fib retracement was ultimately reached.  Just depends if you like quick action or want to hold for the long term kill.

 

In Closing, the Fade play is a valid option but only when done correctly.  In case we missed some, here are the biggest takeaways when using this strategy.

  1. Expect it to retrace 1/3 to 1/2 of the initial move.  It is rare to retrace more than that.
  2. There must be strong conviction as to why you can fade the move.  You get to decide the rules of conviction you wish to use, but you must be consistent and only take the trade when they are present.
  3. This is strongest after the first hour of the day or after any closed hour candle.
  4. You must decide ahead of time whether you need closed candle confirmation or not.  We prefer closed and waited for the 5 minute to give us just that before entry.
  5. Be willing to take a second shot if wrong on the fade.  Fades fail more often than not but a solid fade can produce 3:1 or better, the math works but only if your plan allows it.
  6. Volume is always helpful to show potential ending spots but as M shows it is not required.
  7. Conviction is a must, not a maybe. 

As always, only look to add the fade play to your playbook if your plan allows.  When building a plan, strategies like this can work extremely well and can be steam rolled.  You have to understand your timeframes, the market, and your specific goals.  

 

Should This Be Part of Your Plan?

Now that you’ve learned something new, you’ve got to ask yourself if this should be part of your custom trade plan.  Is this new knowledge something that could help take your trading to the next level?  Or is this something that is nice to know but ultimately does not have a place in your CTP.
You have to decide for yourself.  Your Plan can only encompass so much, and every piece that’s in there has to have a purpose.  This does not mean that once it’s written it cannot be changed, but if it’s being changed, it should only be done so for a very specific purpose.  The plan is your key to the kingdom, only put into it what helps you get there.
If you do not yet have a custom trading plan or simply don’t know where to start, we can help.  Head over to our CTP Premium Section to see how we built a swing trading system with a plan from start to finish.  This is the end all systems for plan and trade development.  No matter what part of trading you’re lacking in, this is the answer.
Or if you’re not ready to spend anything on your future, head over to the CTP trading strategies section and see if you can start building something out of that.  We’re always here if you need us, but in the end, you’ve got to be willing to put in the work.
After all, it’s your money; why isn’t it your plan?

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Price Channels–The Hidden Gem of Breakouts

Whether you want to clean up your charts, want a better way to determine when to trade certain setups, or are simply looking for a quicker one look option, price channels can provide an excellent addition to your charts.  We talked about this in indicators 101, every single part of your charts must have a purpose.  If you can’t completely explain why the indicator is on there, take it off.  Hopefully, by the time this article is over, you will have no doubt in your mind why price channels could be in your trading arsenal.

The picture shown on the blog was SPY which was called long mid 17′ at 245.01 on the break.  Notice how on a 3% stop you’d now be up over 10% simply trading a general market breakout?  That is the power of using price channels the right way.  If you want to learn more, let’s get started.

This is SQ.  It’s clearly been a beast in 2017.  However, this wasn’t the first time it tried to be such a beast.  What about in April 2016 when it made new ATH yet it fails shortly after.  How come SQ can’t do then what it does now?  Part of the answer at least, was shown in the price channels.

All technical analysis ignores fundamentals.  We have to understand this going in because there may be a solid fundamental reason why SQ shifted in 2017 to allow such a move, whether general market or stock specific.  Regardless, for this example, we are only focusing on this indicator.  Whatever other reasons present for SQ are simply not important for our technical view.

To look at the results of SQ and ultimately price channels, we really just need to remember these 5 rules.

Rule #1. Price Channels work best on Higher Timeframes.

This means if you’re unsure, get to a higher timeframe.  If considering a daily trade using these channels and you can’t tell, move to the weekly.  If using a 15 minute trade, move to the 60. 

If you can see a breakout on your timeframe but see a potental floor or lid against you on a slightly higher timeframe, the odds of a successful break go down significantly.  Put another way, when in doutbt, zoom out.

Rule #2. Price Channels work Best after a Rest.

Let’s go back to our SQ example.  Notice in April 2016 when price makes a new 20 range high but it can’t get past that and ultimately rolls over.  Now take a look at 2017.  Price makes a new 20 range high on the weekly chart, which is also an All Time High (ATH), and then rests.

The difference is this time price pulls back slightly and holds above the old 20 range high.  After it’s held for a few weeks to months, price starts to move back up.  It has now had a long enough rest after the initial move to continue when it ultimately breaks out.

This also allows you to put your stop below the pivot low of the rest vs the pivot low of the entire move.  Notice the profit difference this makes when your total risk goes from $5 down to $2.50.  All these advantages simply come when the price channels go sideways and you see a potential rest spot.  Getting in after this rest can produce significant returns.

Rule #3. Decide if you're intrabar or closed bar now, not later.

This is a personal question.  Let’s go back to our SQ setup.  Notice the old 20 range high in early 2017.  Now notice the weekly bar that closes just past that range high.  That is the perfect signal.  Seeing this weekly bar close on friday allows you to get in on monday at the start of a new bar with a tight stop and an outsized return.  Great Job.

Now lets’s look at the other side of the coin.  What if the signal bar gets past that high on monday but you’re trading a closed bar.  You’re another 4 trading days before this weekly bar closes and you could miss the entire thing.  Are you willing to trust this and let it play out or do you see a great setup and decide it’s foolish to wait?  When using price channels for breakouts, you have to decide before you start whether it’s a closed candle, intrabar, or both.  The only wrong answer is not deciding until FOMO (Fear of Missing Out) takes over.  Some will not stop and you’ll miss out, others will trigger and pullback and fake you out, there’s no right or wrong answer, as long as you pick an answer.

Rule #4. Watch for Polarity with Price Channels.

Polarity is when support becomes resistance or resistance becomes support.  Notice when price broke out past the 2016 high, it quickly retraces back into that area and holds.  The 2016 resistance (lid) becomes the 2017 support (floor).  

By using price channels it’s incredibly easy to see the horizontal lines where resistance used to be.  This in turn makes it incredibly easy to look at the pullback low after the break and realize it’s holding where price used to stall out at.  

This is one of the primary benefits of using price channels for pullbacks.  They help show where price has come from in a clear and concise way.  

Rule #5. With Price Channels, the shorter the length, the stronger the chance for fakeouts.

This is the only rule where we try and give less wiggle room.  There are going to be times where a 5 length price channel works great, but the shorter the input length, the more chance of false signals.  

Typically, the standard price channel is 20 periods long.  This means price takes the last 20 highs excluding the current high and paints the highest high.  It takes the last 20 lows excluding the current one and paints the lowest low.

As a result, you get a 20 range price channel.  You can tweak the numbers and get more or less signals.  We recommend going up not down in length of the price channel, but there is a reason that 20 is standard.  It’s close to a full trading month, and it encompasses the majority of price action.

 

Putting It All Together

Let’s remember one thing.  No indicator is 100%, no matter how good the article makes it out to be.  If you are simply looking to trade breakouts better, trade pullbacks stronger, or looking for something to help filter your setups a little easier, this could be it.  As all other indicators are simply built off price action, why not trade an indicator that is price action itself.

That being said, however, nothing is fool proof.  Using this in conjunction with something like the cloud creates a pretty strong breakout strategy that can be done in under 15 minutes a day if you know how to scan.

That being said, it’s going to lose.  Everything is.  The key is picking a strategy that works for you, putting in the hours testing it and proving it out, and then starting small and building your trading plan the right way.  Because there’s always another SQ just around the corner, you just have to have the skills to get it.  If you need help building a trading plan, click here.

If you know someone else who would benefit from this teaching, pass us along.  

If you’d like to learn more about trading, our blog is always open.  Good Luck, and as always, trade your own plan.

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Swing Trading 101

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This is a complete video lesson on how to swing trade.  Whether you wish to trade pullbacks or breakouts, whether your a novice or a pro, this has something for you.  Be sure to pass this on to help someone else in your trading circle.  And if you haven’t joined the CTP Group, click the button at the bottom of this page to join now.

Determining The Trend

Traders get so caught up with the word “trend”.  I mean, the trend is your friend, it’s so catchy it must be true.  Yet trying to determine that trend can become such a difficult task you can no longer see the forest for the trees.

In other words, the trend is a very vague term.  What matters more than anything in determining trend is determining your timeframe.  Just because a 5 minute chart is screaming bearish doesn’t mean the daily chart isn’t screaming bullish and that short term chart is about to get run over.

What matters more than anything in determining trend is determining your timeframe.

We’re about to look at a chart with the ticker SQ.  Can you tell what it’s trend is?  It all depends on what your timeframe is.

The daily chart is on the left, 60 minute in the middle, and 5 minute chart on the right.  The solid moving average is a 50ema which is custom coded to turn green when it’s more bullish, red when it’s more bearish, and white when it’s neutral.

The dotted line is the 20sma with same coded parameters.

One of the best ways to determine a trend is looking at 2 different moving averages.  In this example, the 20sma and 50ema.  The 20 is faster than the 50 so when it is above it is a bullish signal, when it is below it is a bearish signal.

I like to use a slower acting faster moving average and a quicker slow moving average.  Hopefully that confused you but I can explain.  Basically, the simple moving average takes the last 20 closes, adds them up, and divides by 20.  The result is a smooth line called a simple moving average.  It reacts equally to all price action.

The exponential moving average however is effected more by more recent data.  As a result it can move faster than a simple moving average when a stock gets going.

By keeping the shorter term moving average equal and weighing the longer term moving average to allow it to move quicker, you have a faster result when looking for crossovers in my personal opinion.

There will be countless others who say I’m wrong here, but that’s the beauty of trading, everything matters, nothing matters but price, everything works, and everything fails.  Just do what works for you.

Back to our chart.  If the 20 is above the 50 it’s a bullish trend.  If the 20 is below the 50 it’s a bearish trend.  So what is the trend here?  It solely depends on your timeframe.  

The daily is still showing a strong uptrend.  The 60 minute recently turned bearish at the yellow arrow.

The 5 minute turned back bearish at the yellow arrow which happened only yesterday.  So the end result here is a bullish daily trend, a bearish 60 trend, and a bearish 5 minute trend.  What do you do with that info?

It depends on whether you are a day trader or a swing trader.  If you are a day trader, you have a bearish trend and are shorting either on breakdowns or on pullbacks.

If you are a swing trader you are sitting out as you can see the shorter timeframes are not giving you any clear reason to take a long trade yet.

If you are day trading, you are aware that the higher timeframe is still bullish and you are looking for smaller targets.

If you are swing trading, you are waiting for shorter term bullish crossovers to start looking for trend entries.

Yet in the end, this picture can help explain why there’s always two sides to a trade.  There can be multiple trends going on at the same time, it simply depends entirely on the timeframe the trader determines to use.

This is why some traders like to use a higher timeframe and a lower timeframe before taking a trade on their trading timeframe.  Going forward, you can see how using a higher timeframe and a lower timeframe before you take a trade could help to determine what other trends are in play.  

In the end, you simply have to trade what works for you.  Just remember, the trend can change at any time.  Don’t get so caught up in this that you can’t see the forest for the trees, simply be aware that trends are very subjective to personal opinions and timeframes.

Think of that next time someone else says the trend is up when you say its down, you both very well could be right.

If you’d like to keep learning more trading advice, sign up below to join the CTP Group and get weekly updates, trading help, and more.

Counter Trend Trading Hack

Picking the top in a trading range is one of those setups that every trader has tried at some point in their career.  It always goes something like “If I can short it at 100 and cover at 80 I’m going to retire in a week and my risk is only a dollar so it fits the risk/reward that the pros are doing.  It’s a sure thing”

The thing about trading is it’s never a sure thing.  Everything can fail.  Even if your risk/reward is strong, if the edge is weak, it still may be the wrong setup to take.  Yes, the pros look for high rewards vs risk, but they also make sure there is an edge present.  You can bet a million dollars on 11 in roulette and make $30 million, but that doesn’t mean you should.

The thing about trading is it's never a sure thing.  Everything can Fail.

Traders see a setup that looks over extended and decide the payout is so strong they can be wrong half the time and still come out ahead, so they take the shot.

Then, the strength keeps going, taking them out along the way, and they see another opportunity just a little higher up, and they take it again.

Taken out a second time, they are now down 2R but see an excellent opportunity to try again and get back everything they’ve lost plus a little more.  Taking it here requires a 2:1 payout just to get back to even minus spreads and commissions, but the reward is still easily 10:1 so it’s worth the risk, they take shot #3 and lose.

By this point they are so fed up with the stock that they move on in disgust, refusing to even look at this symbol anymore.

Just when the trader ran out of money to fade, the stock starts to turn.  The trader, already staring again at the stock and breaking their own vow they had just made, now sits in total disgust as the trade goes 3R in their direction while they ran out of money to trade.

Their plan said 3 shots and done for the day, yet if they only would have taken that 4th shot they would have gotten everything back and then some.

Next time, they won’t follow their plan so much because it was the wrong call.  Next time, they will crush it.  Next time, eventually becomes the last time, if there is no trading edge.  They will continually blame other parts of their own plan until eventually they simply stop following any plan and blow up.  Edge plus Positive Reward to Risk equals success long term.  Everything else is just a trader trying to outsmart everyone else and hoping they aren’t the dumb money at the table.

Next time, eventually becomes the last time, if there is no trading edge.

So how can you find an edge in counter trend trading?

By using a 20 period range high/low break.  This indicator is completely free on most trading platforms.  All it does it take the highest high and lowest low of the last 20 bars (not counting the current bar) and plots it.

This forms a range that can be extremely helpful if used properly.  This is not a catch all by any means, but it is an excellent question to ask yourself before taking a trade.

It works as a fade, which was discussed above and will be discussed in the video that follows, it works as a trailing stop, and it also works as a continuation indicator.

The key to all potential CTP Hacks is this–it should be used correctly, as quickly and efficiently as possible, and is only used to help strengthen your own plan.

Let’s take a look at it as a continuation indicator.  

 

This was NVDA on 9-25-17.  Notice it is simply a 2 and 5 minute chart.  No daily, no ticks, no mid term strength.  Simply looking at the immediate trend with a 20 period range (white lines above and below price on the 2 minute).

When price runs back up to the 50ema on the 2 minute, the 20 range high is still dropping.  When the 2 minute stalls out just below the 20 range high, it shows you this is an excellent shorting opportunity.  

For those that wish to buy NVDA because it’s over extended to the downside and at a rising daily 20sma, it should also show you that not even the 2 minute chart agrees with you yet.

That does not happen until near 12pm when a new 20 range high is made for the first time all day.

This does not guarantee a winning long trade by any means of the imagination, but it does show you how to look at the trade differently.  If you want to buy it long, what timeframes agree with you?  If you don’t have any, how strong is the edge?

 

The video should help explain this even further.  In closing, just remember that everything works and everything fails.  The key to success is not trying to avoid all losing setups, but to look for patterns in your losses and look to adjust those patterns to a different way.

Hopefully this helped your trading style.  Feel free to comment below and let us know what style you like to trade, and if you have noticed a 20 range break as being helpful or not in any of your past wins or losses.  Don’t forget to pass this forward and share it with anyone looking for some help in trading, and until next time, remember to trade your own plan.

Ben from CTP

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