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I’m 24. I make $1.3m per year. I owe it all to the world's most boring trading strategy Here's what I do (& how you can too) 🧵👇:
To start off, we have to understand the point of this strategy.. The goal is to simplify trading and look for repeatable patterns to trade in the markets We want to take advantage of strong market trends Using big momentum swings in the markets we can catch the biggest moves
we want to be in the strongest stocks in the market that institutions are pouring into that way when the markets move higher these will be the leading stocks and when markets move lower these sectors and stocks will hold up the best... the best example lately has been $MU $SNDK
1. Finding market strength and weakness The easiest way to find out if the markets are trending is to: Pull up a chart on <a target="_blank" href="https://tradingview.com" color="blue">tradingview.com</a> and add the 8, 21, 50 EMA's EMA's can be used as a momentum gauge for when the markets are the hottest and stocks follow through the most.
2. Framework Now that we have the EMA's on the chart, we can make some rules for when we want to be active in the markets. Use: $SPY / $QQQ 1) Whenever $SPY / $QQQ are above the 8/21/50 EMA's, we want to be long with full size/conviction 2) Whenever $SPY / $QQQ are below the 8/21/50 EMA's, we want to use smaller size or completely avoid trading This way we have a guide for when markets are going to be following through, and our strategy will be the most effective. We can also use this on the individual names we are swing trading to narrow down our criteria.
3. Scanning for leading stocks Easiest way to scan for leading stocks and themes is to use: <a target="_blank" href="http://tradingview.com" color="blue">tradingview.com</a> Click on screener(bottom left) We want to narrow it down to search for liquid stocks that are leading the market higher on volume Here are the parameters I use in my scan: Price: Over $3 Market cap: Over $300m+ Volume: Over 500k ADR > 3% And most importantly, the 21, 50 EMA's below price to find leading names
Now we have a list of the strongest and most liquid stocks in the market Sort the list by volume descending to find the most LIQUID stocks Best part about this scan is that it narrows down the market to the best stocks that are leading the markets higher... not the stuff that is lagging That's incredibly important because the main goal of this strategy is trading the right stocks that are leading
4. Setup You are now looking for a chart that is setting up in a tight base with a tight pattern forming The goal is to find names that are either just breaking out or about to breakout of tight bases Use this checklist 1. Tight pattern or base 2. decreasing volume on consolidation 3. Setting up above the key moving averages Below are some examples of setups I look for
The pattern itself doesn't matter as much. The most important thing is that you're finding tightness in the market. Think about price as a spring. The more it gets coiled, the more it's going to eventually compress and make a massive move higher. Compression ---> expansion
The goal is to scan through all these stocks and look for setups that match our criteria we want to find 4-5 of the best looking stocks in the leading sectors in the market From there we want to create something called a focus list: A focus list is a short list of the best stocks few by focusing on only a few of the best setups in the markets we can stop ourselves from overtrading and focus on executing our plan.
A name that caught my attention on my scan: $FLEX The stock is setting up in a big daily base right above the key moving averages Its a leading stock in a strong theme data center and cloud hardware volume decreasing in consolidation and increasing in expansion
5. Entry The easiest way to enter is to find a trigger level for the breakout What I look for, is a previous level of resistance that price has rejected multiple times In this example, you can see the $156.63 price level has rejected multiple times If price breaks over that level, then we can assume a daily breakout is likely to occur We want to confirm the breakout with lots of volume over the trigger level
Entry is taken on a break above the trigger level For confirmation, we want to see high volume on a break out of the base. For example $AMKR recent base breakout: -Leading stock -Breaking out of a tight daily base -Leading sector Enter long at the break above the the trigger level
We can use the 5m/15m time frame to confirm our entry. break over the trigger level signals an entry
Stop loss is placed on the low of the daily candle that broke trigger to make sure that we manage our risk in case of a failed breakout
7. Targets Take profits at previous resistance levels If price is making new all time highs, use Fibonacci levels to scale out. My scale out strategy is 25% of the position at a time and moving up stop to break even after first trim. After your second trim into strength, start to trail the key moving averages Sell only when the stock breaks under the 8 EMA on a daily closing bases (25%) The sell only if the stock breaks under the 21 EMA on a daily closing bases (25%)
This sets you up for a huge r/r trade for breakouts we do not want the stock to comeback to our entry level the strongest stocks will lockout traders and keep running this is why my scale strategy works so well to hold winners
The goal is to hold onto the trade until targets are hit or you are stopped out This will help you make trading emotionless Everything is preplanned and you are taking amazing risk to reward trades Breakouts allow you to capture huge moves and using options contracts you can use the leverage they provide to risk small amounts of money for bigger hits This works best when markets are very strong and setups are firing(above moving averages)
The reason this strategy works so well is because we are trading the stocks that are leading the market higher and emerging out of strong sectors and themes. We are also taking advantage of the strongest environments in the markets when stocks are breaking out and following through
Like any other strategy this is not a holy grail strategy but there's a reason why some of the best traders in the world swing strong names, and buy leading stocks in leading sectors. I've personally used this strategy to catch: $MU $ARM $NBIS $INTC $RKLB Just this year...