How I Daytrade

So I have a few readers interested in knowing how I daytrade SOLF and how to look for entry/exit points. It is tough to explain with text and honestly if I had a way to post videos instead it would be much easier to understand. But here it is to the best of my knowledge.

Day trading is about understanding price, pattern, time, and volume at a specific moment and then utilizing indicators to predict the potential future movement of the stock. When I day trade, I first study where the stock has been. To do this, I pull up a 3 month daily chart - That is the daily movement of the stock price for the past 3 months.



From a 3 month chart, the amount of volume in the past couple weeks is unmistakably higher. More volume = more volatility.

throughout the past week SOLF has made a gigantic move up since its breakout from the 200DMA (remember my post about that from a couple weeks back?), topped out near 29, and have sold off. It has then subsequently touched the middle bollinger line (the dotted line within the shade), and bounced. Since the price level of the stock is now currently below the upper bollinger line, I will reasonably expect the stock to once again hit resistance as it reaches there ($24.88).

The stochastics tell me the stock has a big potentially to continue down because the solid line is trapped below the dotted line.. When the solid cannot breakout from the dotted, it is a bearish indicator.


Now lets look at the 2 day 10 minute chart.


Reading a 10 minute chart is almost identical to reading wider time scale charts with a few exceptions - more emphasis needs to be placed on technical indicators as well as the price pattern that is forming. The indicator I pay attention to the most is the stochastics. During the intraday if the stochastics reaches 90-100 percentile, that is my target to put on short positions. Notice as the stochastic started coming down the stock tanked with it.

The price pattern is even more important. Notice where I boxed the bottom and top of the stock intraday. During the bottom, we see the stock touching the 50DMA and bounced. The reason I know it bounced is because of the "bottoming tail" that emerged. This means, during the 10 minutes when those bars were active, the stock got sold off to that level and when it touched the moving average buyers came in and boosted the stock price back up. When you see multiple bottoming tails (stock has to close in the top 25% tier of the candle), along with the stochastics at the 10-20 percentile, THAT IS THE SIGNAL TO COVER SHORT POSITIONS AND GO LONG.

Notice also during the very extreme of the selloff, the momentum indicator also shows a severe bias towards the red side, when that occurs, it is also the signal to cover.

The same with topping action. Notice the top box I drew in. When the stock is starting to top off, you will see the stochastics reaching 90%+, you will see the momentum indicator skewed towards the green, and the most important would be the "topping tails". Just like a bottoming tail, a topping tail occurs when the stock gets a bid at certain prices but cannot sustain. During the 10 minutes when those bars were active, the stock pushed up toward higher highs', and as they got up, sellers came in and locked profits. When there are multiple topping tails emerging (stock has to close in the bottom 25% tier of the candle), along with the stochastics at the 90-100 percentile, THAT IS THE SIGNAL TO SELL LONGS AND INITIATE SHORTS.

Understanding how the chart patterns work is already half the battle. Add all the other technical indicators into the equation allows me to predict with about 75-80% certainty of what the stock will do next. It is not an exact science though and sometimes it is very tough to gauge it during a live session. It is one thing to study the charts now "After the fact" versus trading it live. Even with all these indicators, I still mess up from time to time. Today because I didn't stay disciplined my intraday gains were wiped. But this is my method to day trade.

Finally, the Level II stream as well as the velocity meter provide great tells to the stock momentum and is vital to day trading. It gives day traders very good ideas the amount of bids being queued on the long and short side, as well as telling me the intensity of the buy and sells.

Day trading is about putting all the pieces to the puzzle together and being nimble. In addition, the amount of shares you can trade is very important as well. Because the more shares you are able to move around, the less time exposure it is required for the trade. And less time exposure = less risk. Factors such as capital gain taxes and transaction fees also needs to be considered because those are expenses that cannot be avoided. Trading 100 shares of SOLF at 30 cents gain will only equate in 30 dollars of profit. In the scheme of percentage movement, that is a sizeable gain. But 30 dollars of profit subtract on average 15 dollars in transaction fee would mean already half the profit is wiped. Then consider the 30%~ of taxes that has to be paid, it wouldn't leave too much profit left and thus not worthwhile for the effort put in. Not to mention in order for a 20 dollar stock to move 1 dollar will require massive amount of volume. And the longer a daytrade is in place, the more risk it gets exposed to.

But 1000 shares on 30 cents profit would equate to 300 dollars. 300 dollars subtract 15 dollar transaction fees = 285 dollars then deduct roughly 30% in capital gain taxes would still leave a net profit of $200. Now that is more like it. Make sure to consider whether day trading is suitable for you in terms of risk as well as the rewards. Make sure it is worth the effort!

Good luck!