presented by Thomas Wood MicroQuant SM Divergence Trading Workshop Day One - My 4 Favorite Trades - Essential Trades of a Professional Trader
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About Me Dave Aquino 1995 Graduate of Vanderbilt University Full Broker at Age 23 with Merrill Lynch 12 Year Senior Advisor Vanguard Asset Management Service 31 months in Stocks & Options Live Trading Room
- My 4 Favorite Trades - Essential Trades of a Professional Trader
4 Essential Trades of a Professional Trader The Consistency Trade The Explosive Trade The Continuation Trend Surfing Trade Do It Everyday Trade
The Consistency Trade
4 Essential Trades of a Professional Trader Weekly Credit Spread Routine, consistently performing weekly income trade. Sell Credit Spreads based on 60 min & Daily timeframe Selling Option Premium : Theta (time) Decay
4 Essential Trades of a Professional Trader Weekly Credit Spread Trades on Mon, Tues or possibly Wed Selection based on Daily chart Momentum trend Protected by at least one, better two: price action setup, significant daily EMA level, daily high/low
4 Essential Trades of a Professional Trader Weekly Credit Spread Trades on Thurs or possibly Wed Selection based on 60 minute chart Momentum trend Protected by at least one price action setup, significant daily EMA level, daily high/low Bonus : Daily chart s momentum trend is in agreement with 60min
4 Essential Trades of a Professional Trader Weekly Credit Spread Selling Spreads requires looking at charts from a different point of view. Focus on selling (short strikes) Away from projected price direction Where will prices most likely NOT be at expiration.
4 Essential Trades of a Professional Trader Weekly Credit Spread
Weekly Credit Spread STEP 1 : Look at 60 min Chart / Daily Chart Check for Momentum Direction & Strength MQ Momentum or MACD Squeeze histogram direction Bonus : for 60 min Charts, Same direction as daily Determine if the daily chart is also in same direction
Weekly Credit Spread STEP 2: Review last 20-30 bars of stock s Price Action Look for obvious setups Divergences, Double Top/Bottom, Channel breakouts Change in momentum : MQM or MACD
Weekly Credit Spread STEP 3 : Look for Active Protection Did Price Action setup create obvious support & resistance levels Plot Daily EMA levels on 60 minute chart Daily highs & lows create high & lows
Weekly Credit Spread Step 4 : Does it pay a decent credit? Historical average, $0.40 - $0.70 Conservative Sweet spot : 0.23 -.40 Don t be too aggressive Bigger credit = bigger risk Less credit = extra distance & extra protection
Weekly Credit Spread STEP 5 : Risk management / Long Term success Once you sell the credit spread, determine risk Recommend 2x 3x max gain, stoploss Active Traders : Mental stops (b/c Fri opening gaps) Set&Forget Traders : Put stops in now
Weekly Credit Spread STEP 6 : Friday AM Watch for reversal gaps If gap against watch momentum strength & possible gap fill If positive or neutral open, maintain position time decay will very likely generate jump in profits at open
Weekly Credit Spread STEP 7 : Exit Phase Friday Afternoon Optimum exit = Spreads expire worthless Keep 100% of Premium No exit commissions If you can t watch, partial profits are OK Try to get commission free close out of positions
Weekly Credit Spread Set & Forget Traders : Extra notes Be selective on candidate OK to have more requirements : clear momentum, clear setups, daily high/low support & resistance levels Decide on Risk Control / Stop Loss levels Too narrow : stopped out early Too wide : too expensive losses In both cases, reduce # contracts What we can control : Being Selective
Questions on the Consistency Trade - Hourly Credit Spreads -
The Explosive Trade
4 Essential Trades of a Professional Trader The Explosive Trade Directional Breakout Squeeze Trade Situational Trade : Compression -> Breakout These trades, especially in hourly & daily timeframes, can be start of major moves
4 Essential Trades of a Professional Trader The Explosive Trade Any Trading Day, Any Timeframe Trade Based on breakout of a Momentum trend
The Explosive Trade STEP 1 : Look at Chart, any Timeframe (5 min, 60 min, Daily) Check for YELLOW VBT Squeeze Signal dots
4 Essential Trades of a Professional Trader
The Explosive Trade STEP 2: Look for obvious quiet consolidation Horizontal Channel Pattern Pennant formation Review last 20-30 bars of stock s Price Action Change in momentum : MQ Momentum or MACD
4 Essential Trades of a Professional Trader
The Explosive Trade STEP 3: You can enter once MQ Momentum or MACD signal lines are favoring a bullish/bearish side. Or you can wait until breakout occurs across support/ resistance level
The Explosive Trade STEP 4: Monitor Momentum Signal Line slope, look for building momentum strength Verify Heavy Volume (dark blue) in VBT on Squeeze fire, watch for increasing VBT histogram
4 Essential Trades of a Professional Trader
The Explosive Trade STEP 5: Hold Trade until Momentum Signal Line slope, goes flat VBT Histogram Bars switch or start moving back to mid-line Get reversal setup in opposite direction
4 Essential Trades of a Professional Trader
Questions on the Explosive Trade - Directional Squeeze Breakout -
The Bull & Bear Flag Trade
4 Essential Trades of a Professional Trader Bull Flag & Bear Flag Trade Ever feel disappointed that you missed a trade? Still want to jump on, but didn t know how? The continuation trades : Bull Flag & Bear Flag can get you in on the price action, and help you more safely enter a trade.
4 Essential Trades of a Professional Trader Bull Flag
Option Trading Ninja Bull Flag & Bear Flag
4 Essential Trades of a Professional Trader Bear Flag
4 Essential Trades of a Professional Trader Bull Flag & Bear Flag
Bull Flag & Bear Flag STEP 1 : Look at Chart, any Timeframe (5 min, 60 min, Daily) Check for Verified Breakout or Reversal Strong directional momentum
Bull Flag & Bear Flag STEP 2: Bullish Trend Bull Flag formation Look for lower high / lower low bar Pattern (3 Bar) - Look for entry at first break of previous bar high
4 Essential Trades of a Professional Trader Bull Flag
Bull Flag & Bear Flag STEP 2: Bearish Trend Bear Flag formation Look for higher high / higher low bar Pattern (3 Bar) - Look for entry at first break of previous bar low
4 Essential Trades of a Professional Trader Bear Flag
Bull Flag & Bear Flag STEP 3: Continue to hold through subsequent bull/bear flags Possible to Add positions, 1 st or 2 nd flag Trend usually has 3 4 Flags before reversal
Questions on Bull & Bear Flags
The Do It Everyday Trade
4 Essential Trades of a Professional Trader Mid-Morning Reversal Within the framework of the Opening Range, the Mid-AM reversal is one of the most consistent intraday trading patterns. You trade against a consistent trending move that runs some time in the first trading hour.
4 Essential Trades of a Professional Trader Mid-Morning Reversal Between 10:15 10:30 10:45, look for a reversal pattern against the O.R. Move Highest probability move is a 50% retracement. Next highest 61.8%
4 Essential Trades of a Professional Trader Mid-Morning Reversal
4 Essential Trades of a Professional Trader * The OPENING RANGE * - Opening Range of the trading day - Defined by the first 30 minutes (9:30am 10am Eastern) - Opening Range High the highest price the index traded in the first 30 minutes - Opening Range Low the lowest price the index traded in the first 30 minutes
Opening Range
4 Essential Trades of a Professional Trader * The Mid-Morning Reversal* - 10:00 10:45 AM : Likely range of Mid-AM Reversal - If Index moving +45 inside O.R. Box it will emerge at the top of the O.R. Box - If Index moving -45 inside O.R. Box it will emerge at the bottom of the O.R. Box
4 Essential Trades of a Professional Trader Mid-Morning Reversal
Mid-Morning Reversal
Quick Reversal at 10AM
4 Essential Trades of a Professional Trader Trade Setups for Reversals - Double Tops / Bearish Divergence : still common, higher probability of success because of 2 points of momentum & prices to compare, higher probability against O.R. High or against previous Daily Highs - Double Bottoms / Bullish Divergence : higher probability of success because of 2 points of momentum & prices to compare, higher probability against O.R. Low or against previous Daily Lows - Enter at the Second high/low price in direction of divergence
4 Essential Trades of a Professional Trader Trade Setups for Reversals - Head & Shoulders Pattern : Triple Top/Bottom - Decreasing Momentum Setup - Watch for Double Top / Bearish Divergence pattern to possibly develop into H&S pattern - Watch for Double Bottom / Bullish Divergence pattern to possibly develop into Inverse H&S pattern - Enter at the Right Shoulder as bearish trade
4 Essential Trades of a Professional Trader Mid-Morning Reversal Watch for a trending 20-30 min O.R. Move Between 10:15 10:30 10:45, look for a reversal pattern against the O.R. Move Highest probability move is a 50% retracement. Next highest 61.8%
4 Essential Trades of a Professional Trader Mid-Morning Reversal
Questions on the Do It Everyday Trade Mid-Morning Reversal
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