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Questions and Answers
What does a stop loss of $2 from the entry price and a profit target of $6 indicate?
What does a stop loss of $2 from the entry price and a profit target of $6 indicate?
How is R calculated in the context of position sizing?
How is R calculated in the context of position sizing?
What should be done when the first scale-out point is reached at 1R?
What should be done when the first scale-out point is reached at 1R?
Which of the following is a sign of indecision in price action?
Which of the following is a sign of indecision in price action?
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When should one avoid front-running bearish reversals?
When should one avoid front-running bearish reversals?
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Before scaling out, which factor is essential to ensure?
Before scaling out, which factor is essential to ensure?
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In the context of trading, what does 'scaling out' mean?
In the context of trading, what does 'scaling out' mean?
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What signifies a 'level breakout higher' setup?
What signifies a 'level breakout higher' setup?
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What does 1R represent in the position sizing guide?
What does 1R represent in the position sizing guide?
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When should you first scale out of a position according to the scaling out strategy?
When should you first scale out of a position according to the scaling out strategy?
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What should be done when the price reaches 2R?
What should be done when the price reaches 2R?
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What does it mean if the market shows a larger gap up?
What does it mean if the market shows a larger gap up?
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What type of data should be monitored around 10 am according to the guide?
What type of data should be monitored around 10 am according to the guide?
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How many elements of price action should be aligned for a strong bullish setup as per the strategy?
How many elements of price action should be aligned for a strong bullish setup as per the strategy?
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In what scenario is a dip buy more likely than a breakout trade?
In what scenario is a dip buy more likely than a breakout trade?
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What type of trade setups should be observed for bullish price action?
What type of trade setups should be observed for bullish price action?
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What is the primary expectation when a previous area of resistance turns into support?
What is the primary expectation when a previous area of resistance turns into support?
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What is a key criterion for the confirmation candle in a dip buy setup?
What is a key criterion for the confirmation candle in a dip buy setup?
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What does a higher high followed by a pull back suggest about the bulls' performance?
What does a higher high followed by a pull back suggest about the bulls' performance?
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Which fib level is used to identify a 1:3 risk reward entry?
Which fib level is used to identify a 1:3 risk reward entry?
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What is the maximum percentage of an account one should risk after setting a stop loss?
What is the maximum percentage of an account one should risk after setting a stop loss?
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What is the primary purpose of identifying areas of support in trading setups?
What is the primary purpose of identifying areas of support in trading setups?
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What characteristics should the volume of the confirmation candle exhibit?
What characteristics should the volume of the confirmation candle exhibit?
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Where should the stop loss be placed in relation to the confirmation candle?
Where should the stop loss be placed in relation to the confirmation candle?
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What is the primary setup for a level breakout trade?
What is the primary setup for a level breakout trade?
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What volume condition is necessary for a bullish confirmation in trend reversal lower setups?
What volume condition is necessary for a bullish confirmation in trend reversal lower setups?
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Which type of candle is required for confirmation in a trend reversal lower?
Which type of candle is required for confirmation in a trend reversal lower?
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What is a key difference between trend reversal and level breakout trades?
What is a key difference between trend reversal and level breakout trades?
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What must happen for bulls or bears to imply a trend reversal?
What must happen for bulls or bears to imply a trend reversal?
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Where should profit targets be set according to the trend reversal strategy?
Where should profit targets be set according to the trend reversal strategy?
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What indicates that the bulls failed in a trend reversal lower situation?
What indicates that the bulls failed in a trend reversal lower situation?
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Which candle closing condition is notable for confirming a trend reversal lower?
Which candle closing condition is notable for confirming a trend reversal lower?
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What is the main thesis behind dip buy strategies?
What is the main thesis behind dip buy strategies?
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Which of the following is NOT a valid setup for dip buy trades?
Which of the following is NOT a valid setup for dip buy trades?
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What defines the confirmation standard for dip buy setups?
What defines the confirmation standard for dip buy setups?
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Under what condition should a stricter volume standard for reversals be applied?
Under what condition should a stricter volume standard for reversals be applied?
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What is the purpose of the Fibonacci tool in entry techniques?
What is the purpose of the Fibonacci tool in entry techniques?
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What is the maximum risk allowed when considering position sizing?
What is the maximum risk allowed when considering position sizing?
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Where should the stop loss be placed in a dip buy trade?
Where should the stop loss be placed in a dip buy trade?
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Which position size corresponds to a stop loss of $1 from the entry price?
Which position size corresponds to a stop loss of $1 from the entry price?
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Study Notes
Trade Thesis Overview
- Strong bullish momentum leads to previous resistance areas becoming support during pullbacks.
- Dip buying off identified support levels is a key strategy.
Setups for Trades
- Bouce off VWAP, previous daily highs, fakeouts followed by reversals, BB reversals, and moving average (MA) bounces are effective setups.
- The strategy aims to identify and enter trades as price approaches perceived areas of support.
Confirmation Standard
- Confirmation occurs when the first 5, 10, 15, or 30-minute candle closes fully bullish with increasing outlier volume.
- For dip buys, the confirming candle closes to established support.
- Daily volume support should be present, with confirmation volume exceeding previous bars and preferably larger than a 20-volume period average.
Profit Target and Stop Loss
- Profit targets are set at the next daily, weekly, or monthly highs, or at trendline contact points.
- Stop loss is placed beneath the low of the confirmation candle.
Entry Technique
- Enter after a pullback into the predefined entry zone, ensuring price does not fail before establishing a higher high.
- Use Fibonacci tool to determine entry prices, from profit targets to stop loss locations, employing the 0.236 Fibonacci level for a 1:3 risk-reward entry.
Position Sizing
- Risk management restricts losses to 1% of the account post-stop loss.
- Position sizing zones include:
- Half size: $2 stop loss for $6 profit target.
- Two-thirds size: $1.50 stop loss for $4.50 profit target.
- Full size: $1 stop loss for $3 profit target.
Scaling Out Strategy
- Scaling out utilizes the R system, incrementally trimming positions as profit and loss (PnL) increases.
- The first scale-out occurs at 1R profit, securing a break-even stop loss.
- Subsequent scale-out at 2R profit, adjusting stop loss to entry price.
Key Considerations
- Avoid trading gaps; a larger gap suggests waiting for a pullback rather than engaging in breakout setups.
- If moves seem extended, increase the volume confirmation standard.
- Consider general market conditions and avoid trading during potential early morning fakeouts.
Price Action Observations
- Strong price action is identified by:
- Green candle with increasing volume.
- Monitoring for gaps down that may reverse trends.
- Transitioning from weak to bullish price action necessitates a third confirming factor in price movement.
Additional Trade Setups
- Level breakout trades based on daily, weekly, or monthly patterns with the thesis that bullish momentum transforms resistance to support.
- Trend reversal strategies that incorporate various indicators, signaling potential bearish trends after failed movements.
Volume and Momentum Thresholds
- High volume is critical for both breakout and bearish reversal setups to signify strong control by bulls or bears.
- Monitoring for momentum signs helps in confirming trades; lack thereof may indicate continued consolidation rather than entries.
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Description
This quiz covers key trading strategies related to support and resistance in the financial markets. It focuses on methods like dip buying off support and how previous resistance areas can turn into support during market pullbacks. Test your knowledge on setups like bounces off VWAP and moving averages.
