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day trading: expectations

When trading stock for a living you don’t need to know whats going to happen next to make money. However you do need some type of model for price structure. You need this so you can begin to form as many if-then scenarios as possible. The more high percentage scenarios you can create, the more trades you can take advantage of.

The successful progression we teach is to watch only a few stock, master the set ups in those stocks, increase your share size, then do it again adding more stocks to your list.

One of the simplest and effective setups to monitor for is a consolidation. A consolidation is a pause in a trend. No matter what time frame you monitir trades on, you should be able to find a consolidation which you can stalk. I say stalk because consolidations lead to trends. This can be done on a short term basis also. Yesterday was a very tight trading range, my expectation for today was not long or short, but breakout. I wasn’t going to guess, just sit back and let the natural price action of the market tell me what to do. Trend leads to pause, pause leads to trend. Pay attention 🙂


Categories: Market Set Up
  1. DaytraderDave
    October 30, 2007 at 8:17 am

    Hi Pete,

    Another way of saying this, might be, narrow range bars are always followd by larger range bars.

    Once we know that NRB’s are followed by LRB’s – then all we have to do is watch for the correct signs to limit our risk when we enter the trade.

    With the recent volatility in the market, a trader may not see too many NRB’s, so when that happens, a trader must have plan B, which might now be to look for 2 Day High /Low breakouts – 2DHLB’s.

    We now have NRB’s, LRB’s and 2DHLB’s, and we also have many other real time market indicators to assist us with our trading decisons.

    I am not a great fan of lagging indicators for the simple reason that they all happen after the event, and if a trader is scalping, then seeing things after they happen might not be a good thing. It can be much better to master the tape reading for to gauge the current underlying strenth in the stock.

    Tape reading is only for stocks, IMHO, as the futures markets are manipulated by the big boys so much, that relying on tape reading – or market depth – can be a bad decision, as these guys are master illusionists, and can make you see something that is not there at all!

    Very good site Pete – pity there is not more input from traders, but then again, the majority will always flock to the forums, where they have a never ending supply of anwers to their problems, pity they don’t realise that the majority of forum posters do not have one clue about trading the markets for consistent proifits – and those few that do trade, are more than likely spead betters who are trading for mickey mouse money, which can in no way be compared with live trading stocks up to 5000 shares!



    BTW, I had a look at the options site that someone posted a link to on this site, and it is lacking a lot of basic facts in relation to trading options, such as, 80% + of all OTM options expire worthless, thereby giving the edge to the option seller, as opposed to the buyer, which is the preferred optiion for many newbie stock traders. But this site is not about trading options – so enough on that subject.

  2. January 28, 2008 at 3:22 pm

    A good source for looking for compressed volatility bars leading to breakouts is Toby Crabel’s old book. Linda Raschke and her students also discuss NR4 and NR7 bars/candles to look for compressed volatility. It’s a good strategy and you can refine it further, especially in trending conditions such as when you have an ascending 14-period ADX over 30.

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