MAY 25, 2013 PRECISION SWING TRADINGAFTA SIG. with Frank Ochoa

Transcription

1 MAY 25, 2013 PRECISION SWING TRADINGAFTA SIG with Frank Ochoa

2 Swing Trade Pro PART I: FOUNDATIONAL SWING TRADING CONCEPTS Four Market Phases Understanding Value Identifying Value Opportunities Pivot-Based Moving Averages Pivot Range Analysis Volume-Weighted Average Price PART II: SWING TRADING SETUPS AND ENTRY TECHNIQUES The Importance of Trade Location Pro-Style Entry Techniques Intraday Entry Techniques Indicator-Based Setups Candlestick Setups Range-Based Setups PART III: TRADE AND RISK MANAGEMEN T Forecasting Accurate Targets Scaling and Trailing Techniques Defining Trade Risk 5 Rules of Risk Management Proper Position Sizing Defining Portfolio Risk

3 the Four Market Phases

4 Four Market Phases The Four Market Phases were pioneered by Richard D. Wyckoff and help to provide understanding of the various price cycles, which allows for better market timing. FOUR MARKET PHASES: 1. ACCUMULATION 2. DISTRIBUTION 3. MARKUP 4. MARKDOWN Gives traders a heads-up on the potential upcoming market phase Allows you to anticipate, and prepare for, upcoming price movement Traders that can recognize market phases are able to identify the best profit-making opportunities Tailor your approach to the phase

5 Four Market Phases 3. Distribution Re-Accumulation 4. Markdown Re-Distribution 2. Markup Accumulation 1. Accumulation

6 Best Times to Trade Markup Oftentimes the safest or best times to trade are during the Markup and Markdown phases Markdown Markup These phases offer highly confirmed unidirectional trending price movement

7 Accumulation The Accumulation phase occurs when institutional investors begin buying up substantial supply of a given stock, which creates compression, and usually leads to a Markup phase. Institutions buy large amounts of stock over long periods of time, so as not to drive up the price Contraction before Expansion A large trading range, or base, develops as Institutions build their position Recognizing the Accumulation phase gives insight into future opportunity Wyckoff: believes this phase is the force behind the upcoming move

8 Accumulation is Fuel The Accumulation phase should be seen as a necessity in order for an established Markup phase to develop; the bigger the Accum, the bigger the Markup Once in the Markup phase, every pull-back becomes a high probability value opportunity

9 Markup The Markup phase occurs after a period of Accumulation, and usually leads to a sustained, trending move. This phase provides the BEST opportunity for trading. Price breaks out of the Accumulation phase, and begins trending higher The big money bought during the Accum phase, now retail money joins in Expansion after Contraction This is the most profitable time to buy, and also the safest time to buy Wyckoff: believes this phase is the direct result of the Accumulation phase

10 Best Trading Opps Many techniques and tools can be used to identify pull-back opportunities, like moving averages, VWAP, candlestick setups, and more!

11 Distribution The Distribution phase occurs when institutional investors begin slowly liquidating (selling) their inventory of a given stock, thus creating compression, which typically precedes the Markdown phase. Institutions begin selling large amounts of stock over long periods of time, so as not to disturb price A large trading range develops, as Institutions liquidate their position Recognizing the Distribution phase gives insight into future opportunity Wyckoff: believes this phase is the force behind the upcoming move Contraction before Expansion

12 Distribution While the Distribution phase can be tricky to decipher (from Accumulation), a series of lower highs are usually a tell

13 Markdown The Markdown phase occurs after a period of Distribution, and usually leads to a sustained, trending move. This phase provides the BEST opportunity for trading. Price breaks out of the Distribution phase, and begins trending lower The big money sold during the Distribution phase, now retail money joins in This is the most profitable time to sell short, and also the safest time to sell Wyckoff: believes this phase is the direct result of the Distribution phase Expansion after Contraction

14 Markdown Do you need a setup to trade this? No, you just need an understanding of market structure and value

15 Identifying value opportunities

16 PROFESSIONALS UNDERSTAND VALUE Professionals rely upon their ability to identify value opportunities, and exercise discipline to only trade when good value is present. Quickly and accurately determining value directly affects profitability Patience and discipline are the keys to consistently trading value opportunities Requiring good value for EVERY trade dramatically improves odds for success Trading value reduces risk and maximizes the potential gain

17 TOOLS OF THE TRADE Identifying value opportunities can be quite easy, especially when using the right tools in the right way. PEMA Pivot-Based Exponential Moving Averages visually reveal value opportunities during trending markets Simple; accessible Multiple moving averages easily identify the trend, and its value opportunities Stacked & sloped offers the best way to use this method PIVOT RANGE The Pivot Range reveals a value area each month, which is used to identify value opportunities Simple, accessible Pivot range trend and width analysis can help identify great value and breakout opportunities Buy dips, and sell rips at the pivot range during trending markets VWAP Volume-Weighted Average Price is a classic indicator that clearly reveals a realtime value line Simple, semi-accessible VWAP offers a real-time view of value, and over/undervalued price levels are easily identified Buy dips, and sell rips at VWAP during a trending market

18 TOOLS OF THE TRADE During the Markup phase, every pull-back to the 1st and 2nd levels of the PEMAs offers great value opportunities Premium Accumulation Discount MAs are stacked & sloped, meaning they are all trending higher in unison

19 TOOLS OF THE TRADE During the Markup phase, every test at the Pivot Range is the market testing prior value; if buyers defend value, then another wave of strength occurs Accumulation Price finds support at the Pivot Range during a trending market

20 TOOLS OF THE TRADE During the Markup phase, price will test VWAP to reaffirm direction, which usually welcomes responsive buyers that are eager to buy at a discount Accumulation Pull-backs to VWAP during a strong Markup phase offer great value opportunities

21 setups

22 PEMA PULL-BACK The PEMA Pull-Back setup is used to identify value opportunities during trending markets using pivot-based moving averages. PEMA PULL-BACK Finds value opportunities during the Markup and Markdown phases Buy and Sell pull-backs only within established Markup or Markdown phases L: 13/34/55 M: 13/21/34 H: 8/13/21 Value opportunity setup Trend-confirmed setup Only trade when moving averages are stacked and sloped Trade during Markup and Markdown phases Can use all entry types: OR Breakout, OR/VA Reversal, Ambush, Retest, or Threshold

23 PEMA PB EXAMPLE The safest way to get great trade location is to allow price to test your trigger zone before placing an entry; a successful test is the all clear to negotiate your entry LMT Place a Retest entry at the center of this wick

24 PEMA PB EXAMPLE A reversal candlestick that forms after a test indicates the market will likely defend that level LMT Place a Retest entry at the center of this wick

25 VWAP PULL-BACK The VWAP Pull-Back setup is used to identify value opportunities during trending markets using Volume-Weighted Average Price. VWAP PULL- Buy and Sell pull-backs only within established Markup or Markdown phases BACK Finds value opportunities during the Markup and Markdown phases Value opportunity setup Trend-confirmed setup Only trade when VWAP is moving higher/lower Trade during Markup and Markdown phases VWAP Use the Retest or Ambush entry techniques as close to VWAP as possible (or lower)

26 VWAP PB EXAMPLE A healthy advance usually precedes a pull-back opportunity; this allows traders that missed the train to join the ride LMT Enter on the 3rd bar after the gap by placing a Retest entry at the center of the prior candlestick.

27 VWAP PB EXAMPLE You don t have to be a hero placing Ambush entries; instead, allow price to test your trigger level, then place an entry using the test info LMT Best case scenario: a reversal candlestick forms after testing VWAP; place your Retest entry at the center of the wick

28 HIGHER/LOWER VALUE The Higher and Lower Value setups help identify value opportunities during the Markup and Markdown phases. HIGHER/Lo wer Pivot Range must be completely higher, and prior month s close and current month s open must be above current month s Pivot Range VALUE Finds value opportunities during the Markup and Markdown phases Value opportunity setup Trend confirmed setup Current PR must be completely higher or lower than prior month s Trade during Markup and Markdown phases Allow price to test the Value Area, then use a Retest entry trigger or intraday entry technique

29 LOWER VALUE EXAMPLE LMT LMT Always try to get the best trade location, even if it costs you an entry

30 HIGHER VALUE ENTRIES There are many ways to enter a trade; use the entry that provides the best trade location and makes the most sense for the scenario

31 importance of trade location

32 THE MARKET IS A MARKET While traders often call it The Market, many fail to realize that it is indeed a market. Trading is a game of inches, and every tick counts. We ve become accustomed to paying fixed prices for our goods However, the Stock Market is a real market, without fixed pricing Just as you would negotiate price at a farmer s market or artisan market, you should negotiate your pricing in the Stock Market, as well Every tick saved adds up over time, thereby increasing your profitability

33 IT S AN AUCTION Negotiate your trade like you re bidding at an auction. Be picky, bid low and always try to get the best price possible. Novice traders routinely enter a trade and watch price go immediately against them Instead, let price go against you before you enter the trade Never rush to enter a trade; sitting on your hands is an option Bid low, and patiently allow price to come to you Pro traders bid low, and aren t always filled But when they are filled, they re typically great entries

34 ALL ABOUT LOCATION The secret to making more money out of each trade is... TRADE LOCATION! Make money on the front end of the trade. Better entries (Trade Location) means more profit potential Better entries means less risk Less risk means smaller losses Negotiating your entry (with Limit Orders) eliminates slippage Defining your trade location requires discipline; discipline leads to profitable trading

35 NEGOTIATE THE ENTRY A bullish Outside Day setup develops; rather than enter at the open of the next session, place a buy Limit at the midpoint of the candle ($32.70) LMT H: L: M: 32.70

36 EXECUTION Next day s Open is $33.19, while our entry is $ Made 49 ticks on the front end of the trade (+1.5%) Novice traders fill here LMT Pro traders filled here: $32.70; 9 ticks from the low

37 NEGOTIATE THE ENTRY Bullish gap from an Accumulation phase; rather than enter upon a break of the recent high, place a buy Limit at the midpoint of the candle ($19.30) LMT H: L: M: 19.30

38 EXECUTION Instead of entering upon a new high, we filled at $ Gained 20 ticks on the trade s front end (+1.0%) Most traders fill here LMT Limit Filled: $19.30; 2 ticks from the low

39 pro-style entry techniques

40 PRO-STYLE ENTRY TECHNIQUES Pro-Style entry techniques provide a solid approach to consistently triggering great entries in any timeframe. They force you to be disciplined They help create more profit potential; make money on front end They reduce slippage and risk They provide reliable ways to trigger entries in any timeframe and any type of setup or opportunity

41 PRO-STYLE ENTRY TECHNIQUES AMBUSH ENTRY Placing a Limit Order at a level where price has yet to trade High risk factor Triggers upon a Reversal Must have high confidence factor to use this entry Best used at high confluence zones, or established supp/resis RETEST ENTRY Placing a Limit Order at a level where price recently traded Med risk factor Triggers upon a Reversal Forces you to practice discipline and patience Set Limit order toward the center of the prior candlestick or wick PivotBoss Preferred THRESHOLD ENTRY Placing a Stop Market order beyond a recent high or low Lower risk factor Triggers upon a Breakout Forces you to practice discipline and patience Set SM order beyond a recent high/low, or beyond supp/resis

42 THE RETEST ENTRY Pros deploy the Retest Entry by placing a Limit Order at a level where price has recently traded, in an effort to attain RETEST ENTRY Placing a Limit Order at a level where price recently traded better trade location. Med risk factor Triggers upon a Reversal Forces you to practice discipline and patience Set Limit order toward the center of the prior candlestick or wick PivotBoss Preferred Let price test an area of established support or confluence, then place a buy Limit order toward the center of the testing candlestick or wick

43 RETEST EXAMPLE LMT Let the signal bar fully develop; then set retest Buy Limit at the center of the signal bar

44 RETEST EXAMPLE There s no magic formula or secret recipe; the point is to always try to attain better trade location, even if it s by a few ticks LMT You can also set the retest Buy Limit at the midway point of the prior wick

45 INTRADAY ENTRY TECHNIQUES Intraday entry techniques provide a systematic approach to entering trades, regardless of which timeframe the setup originates. Allow for additional confirmation; provide one last step before entry Can be used when an opportunity exists, but direction remains unknown Provide a structured approach to entering trades; consistency Can also be used as intraday setups ; setup within a setup

46 INTRADAY ENTRY TECHNIQUES Opening Range BREAKOUT Placing a Stop Market Order beyond the 30-min OR high (buy) or low (sell) Lower risk factor Triggers upon a Breakout Regarded as safe ; confirmed entry 30-min Opening Range is standard, but 15-min and 60- min also used Opening Range Reversal Placing a Limit Order at the 30-min OR low (to buy) or high (to sell) Med risk factor Triggers upon a Reversal Trickier entry, but creates more profit potential 30-min Opening Range is standard, but 15-min and 60- min also used Value Area Reversal Placing a Limit Order order within the Value Area for a reversal entry Med risk factor Triggers upon a Reversal Trickier entry, but helps create more profit potential Must be Higher/Lower Value relationship; triggers inside the range

47 VA REVERSAL ENTRY Pros use the VA Reversal entry to time intraday entries for higher timeframe trading opportunities, which offers better trade location. Value Area Reversal Pivot Range must be completely higher, and prior day s close and current day s open must be above current day s Pivot Range Placing a Limit Order order within the Value Area for a reversal entry Med risk factor Triggers upon a Reversal Trickier entry, but helps create more profit potential Must be Higher/Lower Value relationship; triggers inside the range Allow price to test the day s Value Area, then use a Retest entry trigger

48 VA REVERSAL RULES Ideal Rules for Entry: 1. Current pivot range is completely above prior day s 2. Prior day s close is above next day s pivot range 3. Current day s open is above the pivot range 4. Use any Pro-style entry

49 VALUE AREA REVERSAL STRUCTURE The goal is to enter anywhere within the value area during a retest of the prior day s range Buy the Dips The shaded areas show when the market is retesting the prior day s price range before new price discovery occurs

50 VALUE AREA REVERSAL STRUCTURE Visualize the intraday movement within a daily bar structure Your goal is to buy within the wick of the upcoming day

51 VA REVERSAL EXAMPLE Daily Bar overlay Intraday Inside Value setup Get great trade location by triggering entries within the pivot range

52 VA REVERSAL EXAMPLE After direction is confirmed, use a VA Reversal entry to get great trade location * Inside Day w/breakout * The goal is to enter Short upon the wick of the upcoming candlestick

53 VA REVERSAL EXAMPLE Lower Value The goal is to enter anywhere within the value area The Pivot Range visually represents value in the chart; triggering within this zone offers great trade location during a trending market

54 forecasting accurate targets

55 FORECASTING TARGETS The PivotBoss approach to taking profits relies upon forecasting targets based on average price movement and utilizing actual profit targets. Average price movement provides a price-based method to forecasting targets Trading to high-probability targets yields consistent results Using profit targets allows you to more easily incorporate risk management measures Trading to profit targets is the PivotBoss preferred approach

56 PRO-STYLE TECHNIQUES FOR TARGET FORECASTING ADR ADR SWING TARGETS Utilizes multiple-day ranges to forecast reliable targets Simple; effective Can be used for any style of trading and in any timeframe Price-based; self-adjusts to current volatility Success rates over 70% WEEKLY TARGETS Utilizes weekly price range to forecast reliable targets Simple; effective Great for swing trading and range forecasting Price-based; self-adjusts to current volatility Uses average weekly ranges for targets

57 ADR SWING TARGETS ADR Swing Targets use average price movement and multiple-day ranges in order to forecast reliable and accurate targets. ADR SWING TARGETS ADR SWING TARGETS TGT Utilizes multiple-day ranges to forecast reliable targets Simple; effective Can be used for any style of trading and in any timeframe Price-based; self-adjusts to current volatility Success rates over 70% FDL +amdr

58 WHAT IS THE ADR METHOD? The ADR Method is a simple, yet powerful, method used for forecasting targets using average price range in any timeframe. Helps you forecast targets with a high degree of accuracy (>70%!) Auto-adjusts to current market volatility and behavior Simple; effective - and it works! The Real-Time and Swing Editions of The ADR Method teach the entire methodology

59 WHY SHOULD YOU USE ADR TARGETS? Average Daily Range has been used by professionals for years, because it provides a price-based approach that relies on current price behavior. Provides a simple, price-based approach that incorporates recent price behavior Self-adjusts to current volatility Helps provide reasonable price range expectations for the upcoming period of time Allows you to easily forecast bull and bear targets, regardless of timeframe Allows you to anticipate market behavior, including breakouts (expansion) and range markets (compression)

60 MULTIPLE DAY RANGES A Multiple Day Range (MDR) uses the highest high and the lowest low over a given number of days to identify the range. The highest high minus the lowest low over a given number of days The MDR, and its average, is used to identify great swing targets The ADR Method primarily uses a 3- and 5-day calculation, but other periodicities can be used, like a 10- day

61 NORMAL The Normal calculation projects the average MDR higher from the First Day Low (FDL), and lower from the First Day High (FDH). NORMAL CALCULATION Projects Avg MDR higher from the FDL, and lower from FDH Uses 100% of Avg MDR BULL: FDL + Avg MDR BEAR: FDH - Avg MDR Accuracy of ~45% Use as a secondary target Use 3-, 5-, and 10-day ranges The Normal calculation projects 100% of the Avg MDR FDL TGT +amdr Great secondary target, and also helps to forecast future price range

62 NORMAL APPLIED Normal Bull: FDL + amdr Normal Bull: Bull: $33.80 L: $32.17 Entry: $ day MDR = 1.63

63 NORMAL LITE The Normal Lite calculation projects 75% of average MDR higher from the First Day Low (FDL), and lower from the First Day High (FDH). NORMAL LITE CALCULATION Projects 75% of Avg MDR higher from the FDL, and lower from FDH Uses 75% of Avg MDR BULL: FDL + (Avg MDR x.75) BEAR: FDH - (Avg MDR x.75) Accuracy of ~70% Use as the primary target Use 3-, 5-, and 10-day ranges The Normal Lite calculation projects 75% of the Avg MDR FDL TGT +amdr x.75 Great primary target, with a success rate of over 70%

64 NORMAL LITE APPLIED Normal Lite Bull: FDL + (amdr x.75) Normal Bull Lite: (1.63 x.75) NL Bull: $33.39 L: $32.17 Entry: $ day MDR = 1.63

65 ADR WEEKLY TARGETS ADR Weekly Targets use Average Weekly Range (AWR) in order to forecast reliable and accurate targets on a week by week basis. ADR WEEKLY ADR WEEKLY TARGETS TARGETS Utilizes weekly price range to forecast reliable targets Simple; effective Great for swing trading and range forecasting Price-based; self-adjusts to current volatility Uses average weekly ranges for targets WL +AWR

66 AVERAGE WEEKLY RANGE Average Weekly Range (AWR) is calculated exactly like Average Daily Range, but uses weekly bars instead. Weekly range refers to the High minus the Low of the week AWR refers to averaging the weekly ranges over a string of weeks/months A 5- or 10-period calculation works best, as it includes the most recent price behavior

67 AWR FORECASTING AND TARGETS Like MDRs, AWR helps temper expectations for price range and provides a price-based method for forecasting targets for the week. Use AWR to forecast potential price extremes for the upcoming week Identifying the potential price range for a given week helps to manage price range expectations Projecting targets from Monday s high/low provides solid targets for the week Using a confirmed high or low for the week helps to pinpoint the best targets

68 BASE CALCULATIONS The base calculations for forecasting with Average Weekly Range are consistent with all other ADR Method calculations. INITIAL FORECAST Projects AWR higher and lower from the prior week s closing price Uses 100% of AWR BULL: PWC + AWR BEAR: PWC - AWR Used to determine range expectations for the next week Average price range suggests that price should remain within the projected range during the week Base TARGET CALCULATIONS The standard Normal and Normal Lite base calculations are used for targets Normal [uses 100% of AWR] BULL: WL + AWR BEAR: WH - AWR Normal Lite [uses 75% of AWR] BULL: WL + (AWR x.75) BEAR: WH - (AWR x.75)

69 THE INITIAL FORECAST Bull: PWC + AWR = Bear: PWC - AWR = T: $38.04 AWR = 2.00 PWC: $36.04 The Initial Forecast is designed to give you the estimated price range for the upcoming week B: $34.04

70 ADR WEEKLY TARGETS N Bull: WL + AWR NL Bull: WL + (AWR x.75) NL Bear: WH - (AWR x.75) N Bear: WH - AWR N: $37.86 NL: $37.36 AWR = 2.00 H: $36.37 L: $35.86 Use Mon s H/L to forecast Weekly targets; update the targets should a new H/L form NL: $34.87 N: $34.37

71 ADR WEEKLY TARGETS N Bull: WL + AWR NL Bull: WL + (AWR x.75) NL Bear: WH - (AWR x.75) N Bear: WH - AWR N: $37.86 NL: $37.36 AWR = 2.00 H: $36.37 L: $35.86 Price traded right into our forecasted bull targets N: $34.87 N: $34.37

72 ADR WEEKLY TARGETS The Initial Forecast gave us a great starting point for identifying the week s potential price range N: $37.86 NL: $37.36 N: $34.87 N: $34.37

73 FREE TRADE TECHNIQUE The Free Trade Technique is a 2-part scaling technique that allows you to position yourself with a risk-free trade after an initial favorable move. A conservative 2-part scaling technique; defensive approach Allows you to eliminate risk from your trade after an initial favorable move Allows you to dip your toe into the trading waters Allows you to proceed with caution during volatile markets FREE TRADE TECHNIQUE An easy scaling technique that helps position yourself for a risk-free trade Calculate your risk on the trade (Entry price - Stop Loss price) Project this amount higher from your entry price (Free Trade Zone) When price reaches your FTZ, sell half of your position Leave your original stop for the last half of your position You now have a free trade; you lose no money if you are stopped out

74 FREE TRADE EXAMPLES EXAMPLE 1 Learn to trade Risk Per Share: $1.50 (Entry Price - Stop Loss Price) 2. Free Trade Zone: $42.50 (Entry of $41 + $1.50) 3. Sell Half: Sell 1/2 the position at $ Keep Half: Let 1/2 ride with original stop loss of $ with house money EXAMPLE 2 1. Risk Per Share: $0.75 (Entry Price - Stop Loss Price) 2. Free Trade Zone: $22.50 (Entry of $ $0.75) 3. Sell Half: Sell 1/2 the position at $ Keep Half: Let 1/2 ride with original stop loss of $21.00

75 FREE TRADE EXAMPLE ADR (10): 1.91 ADR Stop: ADR/2 =.96 FTZ: Entry + Trade Risk = $ Once price hits the FTZ, there s no risk in the trade anymore; frees your mind N Bull: $ FTZ: $ (Sell 1/2) Entry: $ ADR Stop: $104.62

76 FREE TRADE EXAMPLE Bear: $65.90 ADR Stop: $68.32 E: $67.94 FTZ: $67.56 (Sell 1/2) FTZ: = ADR (10):.76 ADR Stop: ADR/2 =.38

77 Final Thoughts Discipline, patience, and technique are the most important aspects of executing successful swing trades. It s all about Trade Location; remain disciplined in requiring a great entry Know the types of Pro-Style entries, and when to deploy them The setup doesn t make the money; knowing when to use it does Practice leads to confidence; confidence is gained through experience

78 CONTACT ME! Frank Ochoa Author, Educator, Trader Shop: shop.pivotboss.com

79 SWING TRADE PROTRADE AND RISK MANAGEMENT with Frank Ochoa