Less is more. This is something @Ace_Trader and I has been talking about in the voice chat channel. Me, personally, I have been looking into it for a few days now. The purpose to remove all the noises around our trading setups and stick to the basics and what works for us.
What works for me was Support and Resistance, price action, trend lines, and gap fill. I know some of you are having trouble with trading so I wanted to share a simple strategy I'm currently using when I'm day trading SPY. This can also be applied to other tickers as well. Also, it's nothing new but we often overlooked and overcomplicated things.
Ever since last week, this has been my daily routine and I'm sharing it with you guys to see if it can be any help.
- Pull up $SPY 5-10 mins before market open. Identify support and resistance.
- Once the market open, watch where SPY opened at and where the candles are moving. Are the first few candles going straight up or down? Are they consolidating around the support/resistance area?
Here is a great example of SPY on the 7th of Jan. I identified Support/Resistance from pre-market. SPY opened in between the channel. Then it came back down to test the Support level. Bounced off of it (which is a bullish sign) and quickly got rejected by Resistance level.
How to Approach This Trade:
- I would buy after it bounced off of the Support line and set a stop loss a little under it (this vary and depending on your risk tolerance.)
- Noticed how it rejected the Resistance shortly after and consolidate above the Support line? I would enter on the break of that Resistance line.
What about Intraday?
Same thing. Identify intraday support/resistance and go from there. Using the same SPY example from above. It was consolidating above resistance before going higher, then later came back down. Then what happens? It bounced off of that level.
Here is another example from the next day. Again, check pre-market first and identify support/resistance. For this one, we got a resistance, a middle support, and a bottom support.
First, we opened above the resistance line, that's cool. Are we going to spike up? Apparently, it didn't. The second candle breached down below resistance. We got some sellers kicking in on the 3rd one but then the 4th candle was a red one with closing below resistance line.
In this case, I would have taken a put on SPY and set my stop loss somewhere around/above the resistance line. For the next few candles, you see it trying to creep back above the resistance line but got rejected. That's a confirmation that we're bearish at the moment.
To be extra safe, you can wait for the stock to break down below the second support line. In this case, it did as well and found itself going lower. Now we come to the support line. After going lower, it decided to consolidate and pulled back up from the support line drawn based on pre-market data. I would have taken a call after the second bounce.
Watching the price action is extremely important.
Here is an example from today. Super choppy day but I was able to get one trade in. All just from Support and Resistance.
In this example, we also got a top resistance, middle support, and bottom support. SPY decided to opened right on the middle support level. The next candle did the same but it was a green candle. Then the third one totally broke above the resistance line. You can wait for the close of that candle above the resistance line before entering. I personally entered at the third candle today (real trade).
It's a WIP
WIP stands for work in progress. This trading strategy isn't complete. But it's the barebone to a great trading strategy. You can build on top of it by adding other indicators like VWAP, Moving Averages, RSI etc. But do remember not to overload yourself with indicators to the point where you start doubting your decision.
Support and Resistance isn't the only thing I'm using. I also use the Gap Fill indicator and Trend Lines which I'll talk more about below (later). For now, give it a spin and see how it can help you find better entries.
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