Day Trading Setups (Holy Grail?)

I am on the road to have my first profitable month day trading since I have started day trading.  I probably took about 2-3 day trades per week starting back in January or February up until April.  I was up a little, down a little, back to break even.  Since I couldn’t take more than 3 trades per week due to the PTD rule, it was a good way to ease into it.

In May I finally opened up a proper day trading account.  First month did not go so well. The mistake I made was over trading.  Having the freedom to move in and out of trades as I please was more of a bad thing than good.  So I lost about 10% of the account.  My P/L was actually not so bad, it was the fees and commissions that took my account down so much.  Some days I was in and out 15-22 trades.  I read about other guys doing shit like that and said what an idiot.  Who takes 22 trades in a day.  Yeah, well……

Second month was a little more of the same.  I was taking less trades and started seeing some profits.  So I immediately increased my risk per trade and 2 bad days in a row and I had loss all of my gains I had made.  So now I was down about 15% of the account.

Third month, July, is when I am finally seeing some consistency.  Took it slow with my risk.  Taking less trades, being patient with the setups I am familiar with and tracking tracking tracking everything.  Tracking is so very important.  People say knowing yourself as a trader is the holy grail.  Well, you can’t know yourself unless you track what you are doing and finding out what you do well.

I downloaded a trade journal that lets you track pretty much everything and it computes your win%, setups that work for you, time of day, which profit taking methods work best and so on.  So now I know from the data, what has been working and what hasn’t.  A real eye opener.

I’d like to share with you guys what has been working for me the best.

July (first profitable month) statistics:


Win % – 53%        Long – 30%         Short – 64%

Payoff Ratio – 1.96 (winners are almost double my losers, winning % at 50%, I’ll trade like this all day every day)

This also tells me I’m more successful taking shorts.  So I adjusted by only taking the absolute best long setups.  I don’t even look to go long unless it’s shouting at me, take the trade, take the trade!

Time of Day Performance

  • 9:30-9:50 – 61% win
  • 9:51-10:00 – 40% win
  • 10:11 – 10:40 – 20% win
  • 10:41 – 11:14 – 50% win
  • 11:15 – 11:31 – 100% win (only 1 trade taken)

I win mostly right after the open.  I have a bias based on the daily chart or gap and take the trade.  Not only do I win the most here, but it also nets me the biggest profits.  So now I actually don’t really take trades after 10:00AM EST and only manage trades I’m in after that point.  Unless something is absolutely shouting at me to take it, I’m very hesitant to trade after this time.

Entry Setups (Don’t mind the abbreviations, I’ll explain them in a later post)

  • TBOP – 0 for 2
  • TBDP – 1 for 1
  • 1m PB – 6 for 13.  1.7 payoff ratio
  • 2m PB – 3 for 4.  1.85 payoff ratio
  • 1m 3BP – 4 for 5.  1.76 payoff ratio (my 2nd favorite trade but this setup doesn’t come along often and when it does you have to be quick quick quick)
  • 1m ORB – 3 for 4.  1.73 payoff ratio (and highest payout expectancy – my favorite trade because it makes me the most)

Profit Taking

  • Fixed Target – Set a 1.5 to 2x R target based on the setup.  ORB and 3BP do best with fixed 2R-3R target
  • Dynamic Target – 1/2 off at 1R, 1/4 off at 2R, 1/4 off trailing the swing/pivot.  Also works well on the ORB and 3BP setups but seems to work best on the pullback setups.  And actually taking off 3/4 at 1-1.5R is best.  I’ll explain why…..

Before I started tracking my trades, I had no idea what was working and what wasn’t.  I just took trades based on technical analysis books like pullbacks, breakouts, etc.  I usually used a 1 min time frame and just kept doing it and doing it and taking targets whenever I felt like it was a good time to take them.  NO.  Like a parent telling their kid.  NO!

Track your shit.  It’ll open your eyes and give you the confidence you need to let the trade work.  And of course I am still working on letting trades develop and following what the numbers tells me but it is hard, of course.  If you don’t track them, you’ll never know how to approach profit taking for a particular setup.  And I really believe each setup will yield different profit potential. You won’t know how much money you didn’t make because you aren’t tracking it.  Again, different setups yield different profit opportunities.

For example, in my experience, taking a pullback trade after the initial move has made its move or the trend has already been established usually won’t give you as much.  Get in and get out.  Everyone has spotted it already.  The big move from the open has already happened.  You’re now in it from the crumbs.  So take your 1-1.5R and move on.  You’ll probably have a higher winning percentage but smaller wins.

Taking the opening range breakout will yield you much better.  Because that is the “igniting” move of that stock.  That is the move that basically starts the trend.  So of course, you will most likely be able to get 2-3 or more R out of it.  You wouldn’t know this without tracking your trades though.  Winning percentage will be smaller, but you’ll win bigger each time.  Know this before you take the trade and set your target accordingly.  Because if you still take profit at 1R like you did the pullback trade, and it only wins 40% of the time, you’re a losing trader.  If you know this setup nets a minimum of 2R 80% of the time it moves past 1R and it wins 40% of the time, you are now profitable.  Same setup, same entry, just having the confidence and knowing when to hold on makes you a profitable trader.  

Taking a breakout or breakdown in the middle of the day is usually not as lucrative as in the beginning of the day.  I found these setups get stuffed pretty quickly as well.  So take off 3/4 of your position at 1R and see what the rest can do.  Or take off the whole thing at 1R.  It all depends on what your tracking journal is telling you.

So, don’t fall into the trap of setting an arbitrary target each time without doing your research.  I fell into the trap of just setting an arbitrary target on many of my trades and when I go back and look at them, I realized, damn these are good entries, but instead of taking off half at 1R or exiting all at 1.5R, I shot for all or nothing at 3R and came home with a full stop out.  Shit.

Yeah, taking a pullback off of an already established trend on a slow stock hoping to get 4R is not a winning proposition.  Taking a trade at the open based on a breakout on the daily chart with positive earnings report?  OK, yes 4R is realistic.  Go for it.  See what I mean?

By no means am I a super profitable, ultra successful trader just yet.  But I’m getting there.  And each month I’m improving.  So here is my suggestion.  Take a month or two and risk small size.  Risk $20 or something.  You’re going to lose money during this time, no doubt.  This is time for you to track everything.  Do not take stupid impulsive trades (that’s why I say risk $20, if you do it on sim you’ll start fucking around too much).  Take the setups you learned.  Just set an arbitrary target at 1.5R or something.  At the end of the month find out which setups win the most and least, go back to the charts and find out where the best profit targets would have been.  Maybe 1.5R is perfect for your specific setup.  Track how much you would’ve won at 2R.  Track it how much if you scaled out half at 1R, half at 3R, etc.

By the end of a month or two you’ll have a decent idea of winning percentage of setups and which target is most profitable.  If you have a setup that wins 30% of the time but the times it wins it goes 6R, great.  Set your target at a little less, maybe 5R and figure out if it is still a profitable setup.  If not, dump it.  You have a setup that wins 80% of the time but only nets you .8R?  Might seem good, but after commissions and fees it’s a losing setup.

Point is you’ll only know if you track it.  I never understood what successful traders meant by “you have to work hard to make it at trading,” and I think this is what they meant.  It’s not fun.  It’s like doing chores.  But I make time every week to do it.  And it has made all the difference so far.  Put in the work, track your shit, adjust your plan accordingly.

And when you start making money, send some my way.









Getting Paid – Trade Management

A topic I have been researching a lot lately is taking profits during a trade.  That’s right. Payin’ yoself!  We’ve all been in the situation where we are in the money nicely and price just barely misses our target only to watch in horror as it comes back to entry and even potentially stopping us out.  No, no, no, no, no.  Can’t let this bastard take all that I had.  Get fidgety and next thing you know, I click the button.  Close trade for a tiny profit or break even.  What the &*)$ the trade is now going back in the original direction.  Shit.  Don’t you hate that?  So what do you do to avoid it?

Before you continue: I would say that I am proficient enough now at choosing the right trades to get into. Usually they do move in my favor from entry at least 60% of the time.  The other 40% of the time, prices either reverse or go my way a little bit and reverse or consolidate more.  So that means I am picking the right trades to get into when I stay disciplined on my entries.  If you aren’t at this point yet, probably better you keep working on your entries and then focus on trade management when you get some trades going your way.

You’re picking the right trades and it always seems like you are watching in horror as you see profits running away from you, right before that target is hit.  You don’t want to keep taking tiny profits and but you hate seeing your profits disappear.

Well, if you were like me, every technical book out there stresses – You need to set at LEAST a 2R target and anything less is not worth taking.  Ok, true.  You should only take trades with the POTENTIAL to gain at least 2x your risk.  Don’t confuse the two.  What do I mean?  Well, you see a pullback coming, you want to short.  The previous swing low is about a 2R profit away, so it’s reasonable to take the trade.  Stop above the swing you just entered short on and we’re off.  Except price lurches down, almost getting to that 2R, reverses sharply and you’re now sitting at a break even trade.  Ugh.  I can see the pain in your eyes.

What’s the solution?  Well, I pay myself on the way.  I stalked the trade, I made the correct entry and I was right about prices continuing.  Why shouldn’t I take some home with me?  So, regardless of what technical books tell you, I’m going to let you guys on a little secret that has turned me somewhat profitable swing trading and improving my day trading.  PAY YO SELF (with certain requirements of course 🙂 )!

Let’s review conventional profit taking methods:

  1. Set it and forget it.  The target is at 3:1, it either hits stop or target.  For me, too strict, too arbitrary, and it just eats me up to see a trade miss my target by a penny and reverse for a full loss.  I used to do this.  Didn’t work.  So, no go for me.
  2. Trailing your stop above or below the previous bar.  So if you’re using 5-min bars, you just trail it down on a short above the previous bar’s high.  Except for me, price always seems to “tap” me out and then continue on down.  Then it feels like some troll is just behind a desk, stop searching.  Again, not for me, usually.
  3. EMA exit.  You put some EMA you like on the chart and ride the trade until prices touch it and you exit.  Not a bad idea, keeps your emotions out of the trade as long as you stick to your rule and usually keeps you on the right side of the trade.  But then again you can miss out on a lot of gains as you’re most likely taking profits at the end of the pullback.
  4. Pivot exits.  You entered short, price is going down and you wait for the next pullback.  Excruciating as that sounds, some patient people are able to sit through 3 pullbacks and take profit at something crazy like 8:1 towards the low of the day. You simply put your stop above the previous pivot/swing high or low and keep riding the trade up or down until it is hit.  Requires zen-like patience and balls of titanium.  Again, not for me.
  5. Into strength – a lot of those penny stock guys like to do this.  You get a nice big spike and sell some of your profits before the pullback.  Not a bad idea as usually after you get that nice surge, a pullback is underway anyway. Hmmm…

So what to do?

This is where you have to know yourself as a person to improve.  Are you fidgety and hate seeing profits wash away, like me?  You want to stay with the moves that are big but get out of the ones that are quick?  How to know when which is which?  You don’t! So, combine profit taking methods!

Usually with my swing trades, I do the following:

  1. 1/2 or 3/4 size at 1R or 1.5R.  Here is where discretion is important.  Price has reached your 1R and on the intraday chart looking faaaabolous for more.  It is “spiking” on the daily. Wait.  As soon as price starts sputtering on the 5 min chart, take off half or more (you are selling into strength).  Usually you can milk out about a 1.5R doing this rather than the 1R.  If you take off 75% at 1.5R, you will have a profitable trade even if your original stop is hit with the remainder and here is the most important part for people like myself.  Or maybe price has been shitting around for 2 or 3 days right around your 1R.  Take off 3/4 or half depending on how you feel about it continuing.  No shame in taking some money at your initial risk.  The little guy in my head saying “take the fucking profit, man, take it and run!” is happy and calm.  It’s like I just gave him a fidget spinner.  No longer can I lose on this trade.  I am a winner.  I like winning.
  2. If you want to move the rest to break even, go ahead.  If not, you can’t lose money.  Or you could even take off 1/4 should it go to break even.  Never thought of that huh?  Yeah, put a stop at break even for 1/4 and the last 1/4 at your original stop.  You do it on winning trades, why not on trades going against you?  That way if it does barely stop you out at break even and start moving for you again, you can’t sit there screaming WTF@#%.  You’re still in the game!
  3. Since you just paid yourself the risk you took on for the trade, you can now be a bit more patient with the last half or 1/4.  Here is where you can switch to a different method that is used to squeeze more out of the trade. I’d say a higher EMA (20) and pivot methods are better for staying patient and riding the trade.  Trailing behind previous days is a bit spaz if you already took profits and selling into strength you probably already did when you took your first half off.  Unless you get another day or two of nice momentum movement, then trailing below the previous day is not a bad idea.
  4. Price is moving along nicely.  You are now up to like 3-4R on your second half.  Prices are pulling back to a lower EMA like the 10 (a decent place to take profit on the impulse wave which is probably beginning to pullback).  Wait, don’t cash out just yet.  Take off 1/4 of that now, let the other 1/4 ride as a set it and forget it (where you can sometimes really cash in).  Put your stop to break even and let that last 1/4 go until a target is hit that you set (52 week high, previous swing high, whatever) or your stop is hit.

Note the limit for taking profit is always at least 1R.  Do no start taking some off the table if price is just barely in your favor.  That guarantees you to be a losing trader.

So you get to combine all of the methods into one just for you.  You can be spaz and take off some quick and zen Buddha at the same time and let some ride till the end.

I’ve had so many trades this past month basically only give me step 1.  Maybe 70% of my winners.  But if I hadn’t taken off some at that point, I’d be a net losing trader right now.  Would letting those 30% that went beyond step 1 in a full size position made me more profitable?  Ehhhh, maybe, maybe not.  I should probably do the math, but haven’t. And here is the reason why:  I would’ve definitely lost my sanity and probably gone into “shit %^$# mode,” and start making undisciplined trades if I had so many losing trades or winners turn losers.  So very important.

I am now trying to implement something similar in my day trading.  Things move much quicker and it’s tough to decide which method you want to use with which trades.  I’m still ironing it out, but I think this is the closest to the “holy grail” you will get and once I can implement the trade management that suits my personality on a regular basis, I will be profitable day trading.

So try it out.  If you are still losing money, your entries aren’t good.  If your entries are good enough to go at least 1x (setting a low bar, but that’s how I like it) your risk, you can make money   Take a look at your past trades and make the assessment.  Are most trades you get into going against your sharply?  Practice entries.  Are trades you enter, doing well and then reverse?  Change your trade management.

And for me, it took probably a solid 6-7 months before I was making “good” entries, and I am still improving.  So don’t be upset if you aren’t at that point yet.  You need a setup, trigger, assessment of the trend and chart, etc. but that’s a whole different topic.  Once you master getting in, you gotta master cashing in.

Happy trading ya filthy animals.