Hey everyone, when scalping/day trading, what type of price action do you always like to see: leading into the breakout, and on the actual break out candle? Thank you.
I think day traders have toolboxes different from each other and the way they use these tools are again different, so what works for one, may not for another. There are traders using 20 indicators at once and losing money for years and a trader using 2 indicators for decades and have made Bank. Having said that, sharing a general picture of what price action signals I look for.
Before the trade: Overall Market action, Industry sentiment for the day, Area of value, where will buying selling pressure will step in, moving averages. I avoid trading when the market is away from MA and ignore moving average altogether when it’s a range market.
While setting up a trade: Entry triggers such as price rejection, break of structure, trendline break, trading volume
While in a trade: To see if candles are getting smaller and smaller as they reach support or resistance levels, it shows the price action is losing momentum, hope is to get out before a reversal and not get greedy. Looking for false breaks, buildups, etc. Keeping track Risk to Reward ratio ( This isn’t an actual formula or anything, I calculate in my head, whether if me staying in the position for that extra uptick(s) or downtick(s) makes sense when compared to how much I will lose if a reversal happens) if it does not, exit with what you have made and get out. This is hard to do but improves with time as you get burnt on winning trades. Stacked areas etc.
Wow great answer. Thanks a lot for that.
One more thing, so if price is showing a chop at a key level before potentially breaking out, and volume is decreasing, would you prefer to avoid that trade?
On the initial breakout from a range, a rise in volume means that it has strength i.e is real.
Little change in volume or declining volume on a breakout means a lack of interest or exhaustion which then means a higher probability for a false breakout.
If I’m only trading with a view to buy, you are right, plain avoid it. If you don’t care which way it goes, you can short it at first signs of a break with declining volumes with a tight SL. You will lose some of the trades this way when it turns out it wasn’t a false breakout, the market was just slow to react. But over the long run, you will have more of these right than wrong and will start getting a “bone feeling” about true and false breakouts.
Ok cool, thank you so much I really appreciate it.