HOW I TRADE

This is a brief summary of my primary trading strategy. I do, as market conditions dictate, trade additional methods.

I'd like to preface by acknowledging the following four blogs:

http://traderjamie.blogspot.com/

http://www.traderx.blogspot.com/

http://theimpatienttrader.blogspot.com/

http://highchartpatterns.blogspot.com/

Without their work, I would be a much lesser trader. 

STOCK SELECTION:

1. Prior to each market open, I scan the market for stocks meeting two criteria. A) A minimum 22 day average volume of 3 million shares per day. B) A minimum 20 day volatility of 0.6%. I then load that pool of stocks (capped at 100 total) into my trade ideas scanner. 

2. Next, I visit Trader Mike's site and examine his daily watchlist. I look for stocks outside my first scan hitting the following criteria A) A minimum 22 day average volume of 1.5 million shares per day. B) A minium 20 day volatility of 0.45%. I add these stocks into my trade ideas scanning pool.

3. From market open to approx 10AM-1015AM, I watch the scanner for stocks printing price up or down at least 3% for the day on volume at least 1.5 times the stock's 60 day average. 

This first half hour is very hectic for me. I am constantly swapping stocks in and out of my watchlist. If a stock drops below the 1.5 to 1 number, I expel it from my watchlist. It's gone. I don't want to deal with it.

I use this method because I have found that these strong price/volume stocks produce a far more reliable price action. I only want to trade the strongest stocks.

CONSOLIDATION CONSOLIDATION CONSOLIDATION:

I will only take a position in a stock that is breaking out from a basing pattern. I never ever ever buy on top of a vertical move. 

Some of my favorite basing patterns include: flags, wedges, head and shoulders, cup and handle, ascending/descending triangle.

I prefer buying consolidation patterns as it allows for favorable risk/reward scenarios.

I will only take a position on a stock that prints a notable volume consolidation immediately prior to breakout. I don't want to take positions on stock printing heavier volume prior to breakout. I don't like indecision....I just move on.

I want to buy an orderly base. If the base appears too whippy/choppy, I move on.

There must be an uptick in volume on an upside breakout. 

I primarily use the 1min chart to find consolidation patterns. I'm constantly cycling through my watchlist to find a favorable pattern. 

HOW I USE MOVING AVERAGES:

I use the following moving averages on my charts:

5ema, 10ema, 20ema, 37ema, 50ma, 200ma

I pay attention to how price behaves relative to each of these ema. Whether or not price closes above it/below it.... Candle shape/pattern relative to it, etc.

5ema: I use this ema mainly when reading the 15min chart. I watch behavior/proximity of price relative to this ema. I will not take a position in a stock printing price dislocated from this ema

10ema: This ema, appears "shadowy" on my charts.  I only use this ema, using a similar methodology to the 5ema, occasionally on the 15min chart

20ema: A well behaved trending stock observes this ema as support/resistance

37ema: I picked up the use of this ema off trader x's blog. It is often support/resis on the 15min chart. 

50ma: This my key moving avg. I pay very close attention to price relative this simple moving average on the 1min chart. If price is printing too far above or below this ma, I stay out of the trade.

200ma: Don't cross the boss.

CHARTING TIME FRAMES:

I primarily use the 1min chart for entries and exits and in scanning for set-ups. I always always always check the 15min chart and daily chart for price/moving average support/resistance. I will not take a trade if something is amiss on either chart. I, too, occasionally use 60min chart in conjunction with the 1min 15min and daily.

HOW I USE FIBONACCI:

Again this is something I've added to my trading through reading Trader X's blog. I plot my fibonacci lines from the previous day's high/low to the opening range first pivot low/high.

He explains it much better than me here: http://traderx.blogspot.com/2008/10/fibonacci-lines-indicators-and-holy.html#links

I watch the 38, 50, and 62 retracement levels as support and resistance. I pay close attention to candle/price behavior relative to these levels. 

I also watch the 25 38 and 50 fibonacci extensions. 

These levels are typically where I set my exit targets.

I look for confluences of important moving averages (20, 50) with a fib level near favorable price conditions for especially strong set-ups. 

In addition to fibs, I watch these price levels: Previous day's open, Previous day's close, Yesterday's high, Yesterday's low, Today's high, Today's low, Today's Opening Range high/low.

A FEW ADDITIONAL NOTES:

I NEVER trade the time period 12 noon to 2:20pm. EVER. I don't like the price action during this time. I prefer not to trade it. 

The majority of my trades take place between 10:15-11:00 and 3:00 to close.

I typically take between 1-6 trades per day depending on market conditions. 

LESSONS LEARNED (and still learning):

KNOW THYSELF

A SUCCESSFUL TRADING METHODOLOGY COMPLIMENTS THE TRADER'S PERSONALITY

I've learned about myself that:

I need strict rules to remain consistently profitable.

I am incredibly uncomfortable in a losing trade.

I prefer to make less money taking fewer but stronger set-ups.