an upward sloping price curve,declining volume and a downward sloping RSI then the price isprobably ready to pull in (drop). RSI is a ‘just ok’ measure.
13 Slow Stochastic
The stochastic, along with volume, is the daytrader's favorite momentumoscillator. See this Clearstation link for a complete description. Stochs are usedto identify "pivots", or turning points, in a stock's price momentum. Again, thisneeds to be weighed against overall market direction and volume for your stock.How to use the stochastic in daytrading? It rapidly oscillates up and down basedon the stock's price momentum. Think of it as a “red light/yeiiow iight/greenlight" momentum flag for your trades. If the two lines on the stoch have justreached the bottom and are heading up, the stock price will probably head up aswell.
in the DCLK example above, iook carefully at the stochcurves and DCLK price curve at 13:20 and 14:30. You'llsee the stochs (red/white lines) bottom right before the DCLKprice rises. Next to volume, stochs are my favorite indicator.Experiment with different settings, | find 13 is the best (thecrowd uses 15, so | set mine in by 2 to gain a bit of an edge).It's a trustworthy tool, like a screwdriver. Learn how to use it.Practice with it.
12,26,9 MACD
MACD (also see this link) is a slower, more gradual indicator that canbe used as an overall trend indicator. | always like to iook for the twolines crossing and turning up off the bottom to indicate a goodtime to buy. It's also an "ok" lagging indicator, you can see in theDCLK example it provided a confirmation of the 11:00 bottom to buy offof, nothing original however. | find MACD to be a reassurance and aconfirming trend indicator. As we said, a buy signai is generatedwhen the two MACD lines cross and start turning up. It's a fairlydecent indicator, use in combination with the others.
Ok, that's it for the advanced indicators. They're not rocket science;the most difficult part for me was learning how to see them on autopilot,along with Level 2, to generate true buy and sell signals. Your first”months will be full of seeing false signals, not knowing "for sure" whatthey're telling you (and by then it's too late, etc.).
Our advice? Be patient with yourself, get a bunch of historical intradaycharts with these indicators and practice for yourself with my "3x5 cardat the monitor" technique (it really works!). Pull up a chart, then coverthe right half of it with a 3x5 card and slowly move the card from left toright, to simulate what the chart would look like in a real trading day.
Look at the indicators and 'papertrade' to see if you are reading thechart correctly. Also be sure to reference the composite and sectorindex charts while you do this, to simulate your real daytrading efforts.Good luck.
Now, on to "Bullish Intraday Chart Patterns” and "Bearish IntradayChart Patterns”...a] Send us email DISCLAIMER
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Successful Online Daytrading Training ResourcesModule Essential Skills for All Daytvaders to Leas: = “#PREVOUS NET
How to Daytrade Buiiish intraday Chart Patterns weenie i
@ Main Points:
« There are two primary ‘buiiish’ stock buys to becomefamiiiar with: buying into an uptrend and buying on ananticipated ‘bottom bounce’.
+ Within those two categories there are several specificintraday chart patterns that you should gain familiarity with.These patterns show you how and when to enter tradesbased on what you see.
« Remember that from a “big-picture™ perspective, you arelooking for several signals to converge. telling you whenyou have the best chance of making a winning trade. Thisincludes the overall market trend, the specific 3- and 13-minute trend of your stock, voiume and time-of-day. Then,we look at the intraday trend and level 2 to enter specificprofitabie trades.
« Becoming a ‘sniper’ trader means you are very selective,like a hunter waiting for prey. 95% of your energy is spentfiguring out when the time is right to buy your stock. Ourautomatic smaii and trailing stops make seiiing the easiestpart {contrary to what you hear out there; it's the ‘should ibuy now?" that's agonizing; once you're in the trade youfirmiy stick with your trade rules no matter what.)
«Ido not advocate highly active trading, particularly in yourfirst year. Be content to make 1-2 trades per day, maybe upto 4 or 5. You can make a living at it. | average 80 roundtrips a month, or 4 buy/seiis per trading day.
« Ok, let's look at some chart patterns you need torecognize:
Uptrending Chart Patterns for Daytrading:Breakouts, Triangles, Steady Channels
 
BREAKOUTS: When a chart has been in a steady“trading range" for a length of time (5 minutes to halfan hour, or an hour or so during the iunch break} andbreaks above the resistance line on volume. Thishappens after the tug-of-war between buyers andsellers shifts in favor of buyers, with sellers beingfinished.
e Note: Level 2 can help you spot these as well, when agiven market maker who's been sitting on the inside askcleaning up a client order is finally finished and steps off theask; the stock price will pop up when he goes away. Hemay flip to the bid as well, if he stays through 10k shares orso of buying he may be a net buyer at this point and thestock price will rise. We'll cover more level 2 in Module 2.
« See if you can spot the breakouts in these plays:
Breakout Play #1: —_—This was a buy assoon as it brokethrough itsresistance at 42 ondecent volume. itciimbed another 3/4of a point before aSelling volume spikeoccurred.
This seii signai teiisyou it's time to takeyour profits and run.You had at ieast 15minutes on both theentry and exit tomake 5/8 point. Easymoney.
Breakout Piay #2:This stock had a hard
time breaking through12 3/4 resistance.When it did, it ran upway too fast for mostof us to get on boardwith.
POS r eu eeerrn tena) yamThe easy play? Wait look to Pinch aes mr lgfor a retracement tothe resistance level,buy it when you seeit's consoiidatedabove 12 3/4. Buy onthe uptrend foliowingthe breakoutiselioff.Be cautious and setyour stop rightunderneath thesupport line, in thiscase I'd Set it at 12 5/8.
Breakout Piay #3:Oftentimes the stockprice wili set an initialresistance (and totaiday's range} withinthe first hour. in thiscase, the fact that wehad buyers push it upPast the day'sresistance line (anewhod=high-of-day} telisUs more buying islikeiy ahead.
 
 
The volume surge atthe bottom confirmsthis, so it's a buy at 513/4 or so, usingtrailing stops (orastop set at right underthe resistance fine}.Easy piay.Uptrending TRIANGLES: Look atthe triangie that's drawn in whiteiines on this CPQ chart. Triangiesare one of the easiest and mostprofitabie piays to spot. Thebuyers keep raising the iowestprice they'ii pay for the stock,while the sellers keep the price atthe same resistance ievei. Finaiiy.the point of the triangie narrowsand a big price movement occurs,either up or down.
 
The buyers and sellers get closerand cioser on the price they thinkis fair, foiiowed by “a winner" -note that these can break to thedownside as weil, so: Buy whenyou see the stock price break tothe upside above the top (fiat)resistance line by 1/8 point.immediately set a stop 1/8 - 1/4point under the resistance iine forprotection.
This is what CPQ went on to dothat day:
   
(revatio
STEADY CHANNELS:predictabie uptrendingprice movement thatoscillates within a fixedrange (eg 1/2 point). Buy offsupport in the channei anduse trailing stops to iock inprofit.
Hint: The 50MA oftenprovides an exceiientuptrending ‘support tine’for stocks in an uptrendchannel. See the red line inthe chart to the right. >>
Bottem Bounce Chart Patterns for Deyireding:Oversold Overnight Holds, 5%+ Intraday Drops, Strong RSI
 Oversold OvernightHoids: can be veryprofitabie. Remember ouroversoid PZZA bounce{chart at right>>)? That'swerth a quick 1 6/8 paint in20 minutes. These types ofpiays happen routinely inthe market. Note they aisohoid the danger of a gapdown on open.
 
Here's how to trade it.._first,look at the 10-day chart tosee how often yourparticular stock has gappedup on the open after end ofday seiling recentiy. Somestocks, you Will observe, Wilieither gap up or open fiatduring a timeframe of a weekor two. Capitalize on thesemoves.
OversoldOvernight BouncePlay Example:SBUX
Look at this two-daychart of SBUX...itsoid off from 25 1/2to 23 3/4 on nohews. It iookedoversoid, soibought aconservative 500shares for anovernight hoid at 241/16. isoidpremarket on iSLDat 24 7/16...it wenthigher, but i wassatisfied with aquick 3/8 ($167)
profit overnight.12/09/1999 15:58:29 Bought 500 SBUE 24 1/16 $-12,091.2412/10/1999 09:26:52 Sold SOO sBuUx 24 7/16 $12,208.35
 intraday Channei BottomBounce Piays: Continuing onw/SBUX that day, you can seeit bounced off 24 1/8 3 times...a "triple bottom". That's abuilish pattern to watch for.
Buying off the bottom at 24 3/8each time and selling uptowards 25 resistance wasalso profitabie. These arebottom plays because you'rebuying off what you hope wilibe the bottom of the price,usually at a resistance level.
 
As always, do not try to guesswhere the bottom is, let themarket teli you, as evidencedby an uptick (higher highs,higher lows), with volume.Look at this chart carefuily.Note the volume at the bottomof each bounce. if you do notsee this, you may not have thereal bottom. Where shouid youset your stop? at 23 15/16{right under whole numbersupport).
5% + intraday Drops: if a stocksuddenly seils off (and there's no badnews), you can try to find the bottomand buy the "dead cat bounce". | liketo see at least -5% selloff wino badnews as a high-probability place toconsider entering a trade. (as soon asbuyers come back in, that is!).
a
5% drop play: spls 21 1/8...see howthe price dropped; there was no‘reason' for it, it made a good buy offnear-whoie number support at 211/8...good for a quick 1/4-3/8 pointscalp.
Don't try to guess or anticipate thebottom, ever. Let the market teii youwhen it's done seiiing, not yourperception of how far down the stockprice can go. Wait for a volumereversai to prove you right. Buyingbottoms is always risky, but it is oneof my favorite piays.
 
Think of buying bottoms in this way:the stock price is like a shockabsorber spring; it can oniy bedepressed so much before buyerscome in and it starts to spring back upagain. Likewise, as it gets extendedupwards, it wiil contract and seli offagain.
in summary, the 5% intraday drop telis
you to be on the iookout for these
oversold stocks (preferably ones that
you follow regularly) as potential
buys.Strong RSI Bottomfishing: Finaily, consider buying stocks that dropless than others in their sector do during a market downtrend.
Say for example you're playing semiconductors ($SOX; INTC AMATKLAC XLNX ALTR) and you see the $SOX and most of the semistanking except for XLNX, which is hoiding up fairly weli during theselling. What's the play? Have a Buy XLNX order ready for when themarket and the $SOX turns back up...XLNX shouid be one of the firstones to run.
We Say it has strong relative strength in its sector; people would ratherseli other stocks. Look at the RSI line too in comparison; if the otherstocks are down near the 20 and XLNX for exampie is stili 40-50 thanwe can feei confident that it should run strongiy when the rest of themarket starts to head back up.
As someone said, "Buy strong stocks. Seii weak stocks.” Not the otherway around.
SUMMARY:
Recognizing and using the basic daytrading chartpatterns on this page will help alert you to high-percentage trading opportunities. Get to know them, andpapertrade these patterns using your 4-5 favorite stocksfor at least 3 months. See how your predictions and thepatterns match up. You'll get good at this in time.
Too bad the books don't give you these fine points you need to win.This is experience talking on the page; | hope it helps you become amore successful daytrader! Alright, lets move on the the bearishpatterns shall we? Click on...
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 @PREVIOUS NEXT
Module = ésseniial Skilis for All Dayyadiers to LeasixOne
1 il Back toHow to Daytrade Bearish intraday Chart Patterns mee
@ Main Points:
« The main thing | want for you to learn in this lesson is how torecognize and avoid buying stocks that are about to godown. | want you to ‘stay in the game’ and preserve your capital.The odds are already against you, so let's even it up a bit whileyou leam.
« There are many more ‘dangerous’ or low-percentage chartpatterns than there are high-percentage bullish patterns.When in doubt, stay out.
« Here's a tip that wiii heip you mentaiiy toughen up and getsharper in your daytrade quality and profits you are able totake from the market -- Before you buy any stock, or enterany trade, | want you to identify -
e Which of these three categories does the trade fall into?:
 
Hhest-Pencemrace “ht Dow fuow™ “LOW-PERCENTAGE”
Daytuans DayTRape Dayraace
e Stock is + You are not « Cheap chatroomrebounding from certain which way stocks (eg EFAX toan extreme the stock will go 2! its running!)oversold + You are bored * See abovecondition and want to trade e Read it againwhvolume: or something. « It's lunchtime
« It's heading up in anything (11:30-1:30EST)a steady trading « The stock has and you like thechannel on good been fluctuating stock's analystsvolume; or in a trading ratings or the
e You gotin early channel on flat company'son a positive volume products/servicesnews release « The Level 2 bid ¢ Stock has run upand the stock is and ask columns over 20% in a spikerunning;or look similar, and upwards and you're
¢ Technicals there is no clear chasing it(stochs, MACD, pattem in time e Stock is graduallyRSI, level2) tell and sales to selling off and youyou it's going up follow think you found the
« CNBC mentions bottom (famous lastthe stock price words)being oversold ¢ Stocks with widewino good spreads (1/4pt orreason, or anew bigger) and lowdeal etc. ina volume (underfavorable way; or 300K) Can you say« You're scalping "the mm's will eat
the stock offa you for lunch"?!support level that ¢ Shorting hi-flyersyou are familiar that have strongwith; also volume
« You're not « Many many othersbuying it during to avoidthe lunch
‘deadzone' and« The market isheaded up
Obviously, you should avoid any but the high-percentage tradeopportunities. Many new traders make trades "all over the map"instead of being selective.
To win at this, you must use a microscope and have the patience,strength, focus and determination to make solid trades. In time, you'llget a "it just feels right" trading sense based on all these factors thatyou now know to look for. "It gets easier in time; but it takes a lot oftime before it gets easy.”
Let's look at specific intraday chart patterns to be wary of: (Hint:as you look at these charts, put your hand/paper over the chart andmove it slowly to the right, uncovering the chart, to simulate whathappened over time during the trading day. See what "the first sign oftrouble" was, based on the price and volume movement, along withthe observations in text):
Chart Patterns To Watch Out For:Breakdowns, Down Channels, ‘Pop n Drop’ Spikes
« Making lower lows andlower highs is a sign ofweakness
« Here YHOO fails to make ahigher high (warning #1),next, it bounces off asupport line for a while. Assoon as it makes a lowerlow, you know the sellersare stronger. Not a timeto buy this one.
(Shorter's note: Selling the
stock where it failed to
make a higher high is theshort play here at 222, usethe previous peak as yourstop). We'll cover shortplays in a later module; |
 advise traders againstshorting their first 6 monthsor so of trading).
ov ilfnevaicron
DESCENDING TRIANGLE:The opposite of the bullishascending triangle, whatdoes this one tell you?
Right, there's not enoughbuying interest to keep theprice headed up. So, wecan expect the sellers towin the battle for now as theprice drops.
Notice the volume spikefollowed by no uptrend?That's also a warning flag; itmeans there's more stockto sell than there is to buy,for now.
 
Where's a buy signal? Waituntil the stock hits a low andrebounds w/higherhighs/higher lows, or, wait tilit breaks thru the previoustop on strength.
Fema —
« DOWNTRENDINGCHANNEL: HereTYC is trendingin a downwardschannel, givingyou plenty ofwarning beforethe price breaksto the downside.
 
Chatroom POP n DROP = "JUST SAY NO" to Chatroom Hype StocksSpikes: Avoiding Like These:
Chatroom POP nN DROP = "JUST SAY NO" to Chatroom Hype StocksSpikes: Avoiding Like These:
chatroom pump n dumpspecials is important. Intheir desire to havesomeone show them howto trade, many newtraders will occasionallylog onto the various freeMire chatrooms to see“what's hot”.
 « Sometimes these calls
are ok; many other times
they are junk. | like to ]trade hi-percentagetrades, of which mostchatroom plays are not.They frontrun a stock,hype it and sell to thenewbies while they'rehyping it.
It's dangerous, distractingcommunication that keepsyou from learning how totrade for yourself. Talk toany pro daytrader who'smade it; we'll tell you wedo it the hard way, bylearning daytradingmechanics.
Anyways, avoid pump ndump chatroom specials.‘nuf said.
 
Other Times Not to Buy or Sell Stock:
« When youre tired - you need to be at your most alert to daytrade.
« When you've just had an argument or conflict with someone.
« When you've had alcohol to drink (save that for after hours!)
« When your computer and/or broker is "iffy". It's tough enough withoutthat headache.
« Trading scared or in a losing streak: scale back andpaper/smallshare trade til you get it back.
« When you're bored and you just feel like trading for trading's sake.Play a videogame instead.
Thoughts to trade by:
« Take a break from trading now and then; don't worry about "missinga big run"; they occur daily and the market will be here long after youand | are gone. It'll be there.
« Seize the moment and go for a walk or a cup of coffee somewhere,get a dessert, exercise, look out the window, go golfing etc.
« Your attitude is important: expect to win, but only after you learn,concentrate and practice.
 
 
 
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Successful Online Daytrading Training ResourcesModule Essential Skills for All Daytraders to Leas; 9 “SFREMOUS NEXT
Selling Opening Gaps Up and Buying Opening Gaps down: wna ,
@ Main Points:
One of the easiest daytrades you can make is to buy stocksthat have gapped down by at least 5% or to short stocks thathave gapped up over 5% on the open.
Why does this happen? in overreaction to news or earningsreports.
Guidelines:- This is a trade executed at the open of the market (around 9:35)
- You will probably exit the trade by 10-10:30, depending onmomentum
- Be cautious on these plays by setting stop losses as alwayswithin 1/4-1/2 point max. Especially with earnings plays, the gapdown may continue. The bigger the gap, the more likely someretracement will occur. If a stock gaps over 30% then keep an eyeon it. These happen daily.
Gap Down Exampie: PZZA gapped down to 33 on 17/19
before rebounding to over 36. The play? We bought at 34
1/8, sold at 35 7/8 for a 1 3/4 point gain in 20 minutes. This
was brought to our attention by CNBC.
  
Gap Up Example:SBUX gapped up to 30 3/4 premarketbefore tanking to around 28 1/2. It would have been a“short on open” at 30 3/4. We caught the bounce play fora fractional gain later, but the big play was the short onopen.
ISBUX if inteival Chat
 
Use your quote service to flag volume breakouts and “day'sgainers/losers” to identify gap plays. These can also be playedlater in the morning, so you can check bigcharts etc. for the day'slosers/winners.
“El Send us email DISCLAIMERModule Essential Skills fox All Dayiraders to Leaan; #PRFMOUS NET
Tomahawk scaiping techniques: taking smaii consistent daiiy nee 1profits@ Main Points:
+ The books tell you to “go for base hits not home runs".While that's true, they don't give you the trade mechanics ofhow to do it. That's what this page wiii heip with.
e Using a combination of scalps and trailing stops will help youtake consistent profits out of the street.
« Many new daytraders make the mistake of keeping largestops, becoming confused with investing vs daytrading, andend up with 1/2-point to 1-point (or more) losses on theirtrades. Those of us who trade for a living have a very intenseconcentration while in our positions and try to profect every116th. Beginners say “hey what the heck it’s oniy a 1/4 pointand its a good stock, it'll go up" (famous last words). | like fotrade against guys like that.
« Realize traders, that if you take just 4-5 quarter points a dayon 1K share trades, that gives you an annuai income ofalmost $300K. Not too bad.
« Just a net positive 2 quarter point trades 1K shares gives
you $120K/yr.Daytraders' scaiping « The easiest scalp is whenguidiines: you see a stock oscillatingbetween two prices (eg« You should to trade 500- stuck at 24 1/8 x 24 1/4 for1K shares for 1/16ths, 15 minutes or longer)1/8ths or 1/4 points. If the « As always, make sure totrade is going your way, use a Buy Limit order at the
stay in it for the 1/2 pointor more. Usually, though,it's in and out in under 30minutes.Only scalp trade stockswith solid volume, over300K at the time you enterthe trade. You want to beable to sell quickly.Your time in and time outon scalp trades can beanywhere from 15 secondsfor 1-2 spreads to “as longas the stock is going yourway".« You can scalp short as wellas long.
Bid and Sell at the Offer toavoid paying up 2 spreads.Scalping is a high-frequencyrepeated type of trading thatis not glamorous. You don'tbuy at 35 7/8, watch itskyrocket to 39 and thensell. That's the rarest oftrades. Money is madegrinding out teenies like amarket maker does.Scalping is the easiest andfastest way to take profitsoff the street. You make themarket for the stock andpocket the spread. Marketmakers don't like this :o| find that scalping stocks within a half-point trading range for astock priced in the teens to mid-twenties on volume of 1IM-3M isan easy way to make money on the NASDAQ market.
The toughest part is to be happy flipping several spreads overand over and over ...but when you see you're up $650 or moreeach day that you do that, it's rewarding.
The second toughest part is getting comfortable with buying onthe bid (you have to wait for the stock to come in and take outyour bid) and selling on the offer. Of course, if the stock isselling then you want to pull your offer and hit the bid, thoughyou'll give up one spread this way.
Time of day to scaip: avoid the highest- and lowest-volatilitytimes; scalping is best done from around 10:30am to 11:30amand from 2:30pm to 3:30ish. First half hour of the market andlast half hour tend to be volatile - great for daytradingmomentum, but not for scalping plays.
Other Notes on Scalping: Making the market in a stock by‘playing market maker’ takes a lot of patience. It should beconsidered an intermediate/advanced technique, not forsomeone who has less than 6 months experience in front of alevel 2 screen. You must have Level 2 to scalp stocks. Scalpingalso requires a fast trade pace, our scalps are usually from 20seconds to 3 minutes round trip using a daytrading direct-access broker.
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Successful Online Daytrading Training Resources
 eg Essential Skills for All Daywaclens to Learn: “PREVIOUS NEXTre
How to read reiative strength and major sector stock patterns ies
+ Stocks in each major sector (telecom, internet, chips,boxmakers, retailers etc) tend to follow the “sector leaders".
Examples:
+ INTERNET SECTOR LEADERS ($GIN) : AOL YHOO AMZNen DCLKje + CHIP SECTOR LEADERS ($SOX): INTC AMAT XLNX
te e COMPUTER SECTOR LEADERS: GTW DELL IBM SUNW AAPL« TELECOM SECTOR LEADERS: T WCOM FON GTE
Note that sector index symbols vary by quofe source (eg esignal, bigchartsand quotetracker may be different, efc.).
« Learning how to identify intraday divergence between aparticuiar stock in a sector and the sector ieaders canprove very profitable. If the whole sector is down, sayinternets, but one stock hasn't sold off with the rest of the sector,it's a solid candidate for being the first one to bounce up strongwhen the sector & market turn up (either intraday or across 2 ormore days). We say its intraday reiative strength is higher.Conversely, stocks that are not being bought as much as thesector leaders are in an uptrend (the "generals" of the army) willtend to sell off the fastest as soon as the market and sector headdown.
This is a picture of the $GiN (internet index) for Tuesday.November 30th:
fan l
  
Except for our "10:30 bounce" (remember | told you about that patternearlier), the nets pretty much sold off all day. Notice please: SGIN madea lower low towards the end of the session. The previous low was at580, the new low at 573
Pop Quiz: Which of the following net stocks have the 1) strongestand 2) weakest relative strength to the index? And, what price actionwould you be watching for during the remainder of the week in thesespecific stocks?
Hint: Remember we're looking at price action relative to the sectorindex, relative to the "generals" of the sector, as well as the buyingstrength and selling weakness.
   
What do these four charts, taken with the sector chart above, tell youyou should keep an eye on to buy during the next trading day? Who'sstrong? Who's weak?
(Answers at bottom of page)is
a
 
Answers:
Weakest charts are AOL and YHOO. (also made new lows on theday at the end of the day, iots of seliing).
Strongest charts are ETYS, then AMZN. Notice that ETYS did notmake a lower bottom, and AMZN only weakened slightly incomparison to the $GIN and other ‘net charts.
The trading play? Watch ETYS and AMZN for pre-market gap onthe next trading day, and buy if the buying voiume and higherhighs/higher lows are being made on the tick chart. We couldexpect more selling before buyers come back, so wait to seevolume buying and blocks going off in time & sales beforeentering a trade.
It's easy!
Remember, you just need to ‘foilow the buyers’ and don't goagainst the sellers, for long plays. Common sense.
Not