By Atanu
Knock Thrice Technique involves a per-determined support resistance level that is tested twice. On the third attempt, if the resistance is surpassed, a long position should be initiated with a stop loss a few ticks below the resistance. Similarly if a support level is knocked out in the third attempt, a short position should be initiated with the stop loss a few ticks above the support level.
Opening Price Technique can be used very effectively in day trading. If prices move up after opening, the share should be construed as being in bullish hands. Hence, the day trader should initiate a long position as soon as a pull back from the opening move occurs. A good entry level would be the mid-point between the opening price and the first high that occurred, with the stop loss at the opening level if it is not too far away. If the opening is far from the mid point then the stop loss should be kept a few ticks below the buy level. The reverse strategy holds for the price dipping after opening.
Three Day Fading strategy may be used when a share closes higher/lower for two successive days and today’s opening is higher/lower than yesterday’s close, the share is vulnerable to a sell off / buy pull back, since the market is in a short term overbought/oversold condition. Fading against the move could provide a profitable trade.
Four-Bar Trading technique may be used as follows; of any four bar pattern if the 3rd bar is the lowest low of the four then there is a potential buy signal. However the lowest low must occur above 27 bar moving average; if the low of the four bar pattern is above the moving average then a buying opportunity does not exist.
Three Day option Strategy: If the stock is frozen up for 3 consecutive days, sell out – of – the – money calls on the opening of the 4th day. The trade should be profitable within one hour exited.
Opening Failure Trade: If the market fails to close above the opening range after one of trading and the same appears to be happening after 2/3rd of the next trading day, a short position may be initiated keeping the opening as the stop loss.
Volatility Technique may be used as follows: To determine the extent of the up and down move/volatility calculate H-L (High minus Low) of today and compare with yesterday’s H-L; if today’s range is greater than yesterday’s range it indicates that price has had a new impetus driving it in a direction. Add yesterday’s breakout value to today’s opening that is buy on the open everyday at a distance of 100% of the previous day’s range above the open; sell below the open at a distance of 100% of the previous days range below the open. In each case the stop loss should be at 50% of the previous day’s range subtracted to (for long) / added to (for short) entry level.
Market Swing-Filtering Technique is a variation of the above (Volatility Technique). It involves measuring the price movement from (1) the high three day’s ago to today’s low. (2) the high one day ago to low three days low. The larger of these two values may be assumed to be the basic volatility measurement. Buy at 80% of the swing value above the opening and sell at 120% of the swing value below the opening of the next day.
Smash day Technique is a breakout or break down way when prices close above/below the previous high/low. This technique may be used in various ways :- (1) Buy Set Up : A day that closes lower than the previous day’s low and the very next day the price moves opposite the smash day and trade above the high of a down close smash day – a long position may be initiated. (2) Hidden Smash Day Buy : day as an up close as compared to the previous day. The close will be in lower 25% of the up day’s range. Close below the opening. Next day prices rallies above the high – a long position may be initiated. (3) Hidden Smash Day Sell : Down Close. Close in the upper 25% of the day’s range. Close above the opening. Next day price falls below the hidden smash day’s low – a short position may be initiated.
ROC Technique can be utilized effectively in day trading as follows: The opening prices is noted as P1. After 15 minutes the last traded rate is noted as p2. The ratio P2/P1 is calculated. Again after 15 minutes the price P3 is noted and the ration P3/P2 is calculated. If the second ratio is higher than the first, it indicates that the prices are pulling higher at a faster rate and hence bullish momentum exists. In case the second ratio is lower than the first it shows that there is a deceleration in the underlying moment, which may need to bearishness in the time to come.
Closing Momentum Technique involves noting the trend at above 45 minutes before closing, it is very likely that this trend will continue till the close of the market. The day trader can trade on this momentum bias to generate profitable trades. This may be implemented by noting the closing values every half an hour. If the closing values exhibits a downtrend as the closing of the day approaches, it is likely that the trend continue towards the end. The same holds in case of an uptrend.
Weighted Average Technique involves keeping the weighted average price as the dividing line between the bullish and bearish range of a share. Increasing Weighted Average rate with time signifies sustained buying and further bullishness ahead and vice-verse. New high low being made would add further credence to the direction of the trend shown by the weighted average rate. Even greater power is added to the move if the stock is trading on volumes, which are higher than the average volumes of the immediate past 2-3 days. The day trader may initiate an appropriate position keeping the weighted average rate as the stop-loss; in case this rate is significantly distant from the entry rate, the stop loss should be kept a few ticks above/below the entry point of the short /long position.
Range High Low Technique involves the notion that if at any point of time, prices are above the mean (high + low / 2). then it is likely that the share is in bullish hands and a long trade would be more profitable. Keeping the mean value as a stop loss, a long position may be initiated, in case this rate is significantly distant from the entry rate, the stop loss should be kept a few tick below the entry point. A similar strategy may be adopted for a short position, if the prices are below mean level.
Specialist trap technique works on the principle that the price which was in a trading range in the last 5-7 day periods, suddenly breaks out to the upside, closing above the entire trading range in the following period, but only to relapse back into the trading range in the subsequent 1-3 day trading periods. This signify a high profitability and the breakout was false, as frustrated bulls tried to pull prices higher and inadvertently bought excess which would be shed shortly by them driving prices lower. A short position may be initiated keeping the upper edge of the trading range as a stop loss.
Oops Strategy may be adopted if the prices open with a large gap, even below the previous days low and then rally back up to the previous days low leaving sellers in the lurch. A long position may be immediately initiated keeping the price a few ticks below the previous days low as a stop loss. The reverse strategy, when prices open above the previous days high, may be adopted to initiate a short position.
Bollinger Band Technique can provide good support and resistance as well as volatility indications. When the bands narrow there is a tendency for a sharp price changes to follow. The edges of the band provide support and resistance to the prices. If the price breaks out of the band then it will continue to trend in the direction of the breakout till a decisive reversal signal is obtained. A reversal signal outside the band has great significance .
Triangle technique: The concept of ascending and descending triangles on day trading charts provide phenomenal trading opportunities. A break out from an ascending triangle or a break down from a descending triangle pattern provides a very solid trading point for placing long/short trades keeping the breakout/breakdown point as the stop loss. The price projection is well defined, being the width of the triangle projected upwards/downwards from the breakout/breakout point.
By Atanu
