During the trading day as I scan for set-ups, I keep the following internal checklist:
1) Where is the SPY on the price chart? What is the price context?
2) Are the 1-minute candles of the individual stock being considered for entry giving any hint about a shift in market control? Or giving clues about a potential consolidation?
3) What is the condition of the market from an overbought/oversold standpoint. Is the market hinting at a possible correction?
Where is the SPY on the price chart? What is the price context? (In relative order of importance)
1) Where is the SPY relative to intraday Fibonacci retracement levels? Is the SPY in the retracement zone?
On a gap above the previous day's high, I plot my Fibonacci levels from Yesterday's low to the Opening Range pivot high.
I'm not too particular about what defines "Opening Range". I use the first major morning pivot as my "Opening Range High"
On a gap below the previous day's low, I plot my Fibonacci levels from Yesterday's low to the Opening Range pivot low.
If the market opens within the previous day's range, I plot my Fibs from Yesterday's high to Yesterday's low
2) Is the SPY near a longer-period trendline? Or an intraday trendline?
3) Is the SPY near Yesterday's high, Yesterday's low, Yesterday's Open, Yesterday's Close, The Opening Range Low or High? S1 or R1 Pivot?
4) Is the SPY nearing a half or whole price number? Or other significant price level?
5) What does the SPY 1min 50SMA look like? Is it ascending? descending? flat?
In looking for an entry:
I prefer to see at least TWO forms of support or resistance on the 1-minute SPY chart.
I prefer if at least ONE of these forms of resistance to be a fib line OR longer period trendline
Are the 1-minute candles of the individual stock being considered for entry giving any hint about a shift in market control? Or giving clues about a potential consolidation?
1) Is the monitored chart printing a reversal pattern? What are the details of the pattern
2) Is there a consolidation? What does it look like?
In looking for an entry:
1) If the potential entry is a reversal play I watch for a strong hammer candle. (The smaller the real body, the longer the lower wick, and the stronger the volume on the candle the better.) I then watch the following candle I look for a gap from the high of the hammer candle OR a strong bullish engulfing candle of the hammer.
The candle don't always set-up in succession, sometimes its 3 bars (or 4) like: hammer, doji, gap up bar.
I am mindful of where the potential reversal bar is opening/closing high/low relative to the challenged support/resistance.
I want to see strength in the other direction. I want to see the opposing market force really gain control.
With reversals, I also look for a similar gap and go or strong bullish bar with the morning star , inverted hammer & harami cross patterns. I watch other reversal candle pattern too. But I find those three & the above hammer pattern work with the most consistency.
Most importantly, I want CLEAR signals from the market that reversal is likely. Indecision is not something I want to trade.
2) If the potential entry is a continuation play I watch for candle clues that the consolidation period is near an end.
I watch for 1-min BREAKAWAY gaps from the consolidation OR a strong bullish engulfing type bar that breaks the consolidation swing high. I want to see STRONG CLEAR indication that buying pressure has again overwhelmed the stock.
I also look at the bars within the consolidation. What do they look like? Is the action indecisive or whippy? Or is the action smooth and controlled...Is the volume during the consolidation light and downward trending....Does the consolidation fit the character of a market pause?
On the short side I trade the SKF against the SPY.
On the long side, I look for STRONG stocks (strong price action AND relative volume) that are TOPPING my daily watchlist. I am looking for stocks that are outperforming the market during pullbacks.
What is the condition of the market from an overbought/oversold standpoint. Is the market hinting at a possible correction?
To determine overbought/oversold levels, I watch the 8-period Demarker Indicator on both the 1-minute and 3-minute SPY charts.
1) If the market is ranging or in a weak trend:
I wait for both the 1-minute and 3-minute SPY Demarker to indicate an overbought or oversold condition (above 75 or below 25).
I want the ranging market to ripe for a reversal in direction.
2) If the market is in a strong trend:
I only initiate new positions after the 1-minute SPY Demarker has pulled out of the overbought/oversold condition. NO new long short/positions are put on when the market is overbought/oversold in the direction of the trend. I place little emphasis on the 3-minute SPY overbought/oversold condition in a strongly trending market.
Exits/Stops:
1) Exits with the strategy have been ongoing difficulty for me. The strategy I'm using currently (which is certainly not perfect) is to close my position into an a fib level/trendline/moving avg/price resis as the 1-minute SPY nears an overbought/oversold condition. Once I have a 1% profit, I place a stop at that level to protect at least some profit should my position pullback (I need to my pay rent haha).
2) I set my stop typically a few ticks below the low of the reversal bar I entered against. Occassionally, I will set the stop a few ticks below the low of the reversal bar's real body.
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