DTR Strategy Docs PDF

How to Use this Document This document is a brief description of my basic trading rules. It should help you identify the correct types of setups to trade and help you understand the basic confirmation requirements for all types of market conditions. This guide is simply a starting point. Please fil...

How to Use this Document This document is a brief description of my basic trading rules. It should help you identify the correct types of setups to trade and help you understand the basic confirmation requirements for all types of market conditions. This guide is simply a starting point. Please fill it in with notes, techniques, or ideas that supplement your trading. The idea of the pre market conditions checklist is that it helps to identify what type of market conditions you are likely to encounter. That means that certain types of setups will be rewarded in those conditions. There are 5 basic types of market conditions. And 9 types of conditions in total. (4 bullish, 4 bearish,1 in either way)) This document will break down all 5 market condition types.I trade bullish and bearish setups using the same rules. So if you really want to double check your knowledge try to replicate this document in your own words for bearish setups. To learn the three for three pre market system please watch this video here The 5 Types of Pre Market Conditions 1. 3/3 (Trending) 2. 2/3 (trend with volume) 3. 2/3 (trend without volume) 4. 1/3 (no trend) 5. Inside bar The objective of this guide is to create a basic framework on each of the pre market conditions. Please use it as a starting point only and add any information that you think will help you improve your trading. You will notice that the confirmation, execution, and scale out techniques remain consistent. So master those basics and then just apply the different setup triggers based on the appropriate market conditions. You’re trying to find the path of least resistance. By default, every day you should have two types of setups. But, use your own intuition, gut, technical analysis, or other information to help you filter out setups. Let’s get started… 3/3 - Trending Price Action Green Candle (1) + Green increasing vol (2) + Gap up (3) All 3 elements of price action are telling the same story. Bulls are in control. We can judge how strong or weak bulls are on two variables: the strength of the candle shape, and the relative strength of the volume. Types of Setups to look out for: 1. Level Breakout Trades 2. Dip Buy off of support Level Breakout Trades Setups: daily, weekly, monthly, or pattern breakouts. The setup triggers on the pierce through that horizontal resistance. Trade Thesis: Bulls are strong, so we expect areas of resistance to turn into support Dip Buy off of Support Setups: bounce off vwap, previous daily high, fakeout lower then reverse, bb reversal, ma bounce, etc. The setup triggers as price approaches perceived areas of support. Trade Thesis: Bulls are strong. So we expect previous areas of resistance to act as support on pull backs. The confirmation standard is the same for both setups. And is described in detail below: Confirmation standard: occurs on the first 5/10/15 or 30 min candle that closes as a full body bullish, 2nd most bullish, or normal body bullish and holds the horizontal resistance on increasing outlier volume. On a dip buy, the confirmation candle is the first close to meet the same criteria after the bounce off of support. Because we already have daily (long term) volume support we want to wait for short term momentum to return back to the name. The volume of the confirmation candle should be greater than the previous bar and ideally larger than the 20 volume period average. Profit Target: I target the next daily, weekly, monthly high or the next point of contact on the trend line as a profit target. Stop loss location: Under the low of my confirmation candle Entry technique: Wait for a pull back into your entry zone, prior to price making a higher high above the confirmation candle. We do not want to see bulls fail prior to our entry. Bulls making a higher high and then pulling back to your entry zone implies that bulls met resistance that was different to your intended price target. Which in turn suggests that your current thesis is either not ready or incorrect. I use the fibanoici tool to find my entry price. I draw the fib from my next profit targets towards my stop loss location. I then use the.236 fib level to help me find my 1:3 risk reward entry. This helps me make my entry binary. As my it either hits my price or it doesn’t. Position Sizing: I never want to risk more than 1% of my account after stop loss. So I generally wait for pull backs into 1 of 3 position sizing zones. Half size: when my stop loss is 2 dollars from my entry price and my profit target is 6 dollars away ⅔ Size: when my stop loss is 1.50 from my entry price and my profit target is 4.50 dollars away Full size: when my stop loss is 1 dollar from my entry price and profit target is 3 dollars away. Please reference this handy position sizing guide Scaling out: I scale out using the R system and focus on trimming my position as my pnl is increasing. R = the difference between my entry price and my stop loss. So if my stop loss is 1 dollar away then 1R = $1.00. I want to make sure I am scaling out when it makes sense to do so. That helps me derisk and keep my lottery tickets. My first scale out is at 1r. So if my entry was at 100. My stop loss was at 99, then I’d close ¼ of my position at 101. At that point I don’t want to see this trade turn into a loser. So my stop loss is set at my pnl break even point. Then if the price kept moving, I'd close another ¼ of my original position at 2R. Or 102. Then I would move my stop loss to my entry price. From there I would hold the remaining half of this trade and scale out at my key pre market levels until I get stopped out. Things to look out for: 1. Make sure the move hasn’t happened in the gap. The larger the gap up, the more likely you are to be rewarded for waiting for pull back instead of breakout setups. 2. If you feel like the move is already extended, apply a stricter volume confirmation standard. Either wait for the largest volume of the day or largest volume of the week. 3. Avoid early morning fakeouts by waiting for general market confirmation. Make sure spy, spx, qqq, nq are telling a similar story. Keep an eye on 10 am data. 4. You expect breakouts to occur within the first 30 minutes, and for dip buys to occur once weak bears have exhausted themselves. Usually dip buys occur around 10:15-10:30+ 2/3 with Volume - Mostly Trending Price Action Green Candle (1) + Green increasing vol (2) + Gap down (3) Only 2/3 elements of price action are telling the same story. But, because the candle and volume are strong, we have more confidence that we have trending price action. Our objective is now to make sure that we have bullish price action. We need to counter the gap down and turn this two out of three into a three out of three. In practice, this gives us the same tradable environment as 3/3 conditions except that the dip buy is significantly more likely than the breakout trade. So just like before we can judge how strong or weak bulls are on two variables: the strength of the candle shape, and the relative strength of the volume. Types of Setups to look out for: 1. Level Breakout Trades 2. Dip Buy off of support Level Breakout Trades Setups: daily, weekly, monthly, or pattern breakouts. The setup triggers on the pierce through that horizontal resistance. Trade Thesis: Bulls are strong, so we expect areas of resistance to turn into support Dip Buy off of Support Setups: bounce off vwap, previous daily high, fakeout lower then reverse, bb reversal, ma bounce, etc. The setup triggers as price approaches perceived areas of support. Trade Thesis: Bulls are strong. So we expect previous areas of resistance to act as support on pull backs. You want to look for dip buys where you have seen bulls dip buy before. The confirmation standard is the same for both setups. And is described in detail below: Confirmation standard: occurs on the first 5/10/15 or 30 min candle that closes as a full body bullish, 2nd most bullish, or normal body bullish and holds the horizontal resistance on increasing outlier volume. Because we already have daily volume support we want to wait for momentum to return back to the name. The volume of the confirmation candle should be greater than the previous bar and ideally larger than the 20 volume period average. The confirmation standard changes, if the volume gets invalidated. If we see selling pressure, that is more aggressive than any of the previous day’s volume, then I would apply a stricter volume standard for a reversal. Profit Target: On breakout trades I target the next daily, weekly, monthly high or the next point of contact on the trend line as a profit target. While dip buy trades I either target the bollinger band lines or current high of day. Stop loss location: Under the low of my confirmation candle Entry technique: Wait for a pull back into your entry zone, prior to price making a higher high above your confirmation candle. We do not want to see bulls fail prior to our entry. I use the fib tool to find my entry price. I draw the fib from my next profit targets towards my stop loss location. I then use the.236 fib level to help me find my 1:3 risk reward entry Position Sizing: I never want to risk more than 1% of my account after stop loss. So I generally wait for pull backs into 1 of 3 position sizing zones. Half size: when my stop loss is 2 dollars from my entry price and my profit target is 6 dollars away ⅔ Size: when my stop loss is 1.50 from my entry price and my profit target is 4.50 dollars away Full size: when my stop loss is 1 dollar from my entry price and profit target is 3 dollars away. Please reference this handy position sizing guide Scaling out: I scale out using the R system and focus on trimming my position as my pnl is increasing. R = the difference between my entry price and my stop loss. So if my stop loss is 1 dollar away then 1R = $1.00. I want to make sure I am scaling out when it makes sense to do so. That helps me derisk and keep my lottery tickets. My first scale out is at 1r. So if my entry was at 100. My stop loss was at 99, then I’d close ¼ of my position at 101. At that point I don’t want to see this trade turn into a loser. So my stop loss is set at my pnl break even point. Then if the price kept moving, I'd close another ¼ of my original position at 2R. Or 102. Then I would move my stop loss to my entry price. From there I would hold the remaining half of this trade and scale out at my key pre market levels until I get stopped out. Things to look out for: 1. Don’t try to catch a falling knife, if the selling is more aggressive than you expected wait for the largest volume of the day on reversal confirmation. 2. Wait for deeper pull backs. This trade works best when you identify a strong trend, and then get an overreaction sell off into that trending price action. 2/3 without Volume - Weak Trending Price Action Green Candle (1) + Green decreasing vol (2) + Gap up (3) Only 2 out of 3 elements of price action are telling the same story. Bulls are mostly in control, but there aren’t as many bulls as we would expect. Momentum has left this name and we need to see strong momentum return. This lack of volume indicates that we do not have short term trending price action and should not be looking for dip buy opportunities. We want to wait for the market to establish its personality with conviction. Our base expectation is that bulls will either step in and make new highs, or bulls will fail and bears could then reclaim control. Types of Setups to look out for: 1. Level Breakout Trades 2. Failed Breakouts / Trend Reversal Level Breakout Trades Setups: daily, weekly, monthly, or pattern breakouts. The setup triggers on the pierce through that horizontal resistance. Trade Thesis: Bulls have been strong, so it wouldn’t be surprising to see resistance turn into support Failed Breakout / Trend Reversal Setups: bb reversal, ma cross, green to red reversal, or a failed breakout Trade Thesis: Bulls were strong, but now are exhausted. Bears can reclaim short term control now that bulls are thinning at these highs. Bulls don’t have the need to protect this level and are happy to lock in profits. The confirmation standard is the same for both setups, but are unique to these pre market conditions. They are described in detail below: Confirmation standard: occurs on the first 5/10/15 or 30 min candle that closes as a full body bullish, 2nd most bullish, or normal body bullish and holds the horizontal resistance on increasing outlier volume (breakout). On a failed breakout trade we want to see failed higher highs and 5/10/15 or 30 min candle that closes as a full body bearish, 2nd most bearish, or normal body bearish on a larger volume standard than any of the bullish volume so far today. The key difference here is that we do not have the basis of volume supporting this trade. We need to see the volume step in. Ideally, that means that the opening 5/10/15/ or 30 min candle has larger volume than any volume bar / candle we saw yesterday. We need to see evidence of increasing momentum. If you have evidence of increasing momentum, then you only need increasing volume relative to the previous bar as your confirmation standard or as described above. However, if you do not have evidence that momentum returned, relative to the previous day, then you need to wait for your confirmation candle to give you that volume standard. This means that you will get many close, but no cigar setup triggers. Fundamentally, this trade is waiting for either bulls or bears to reclaim control. Weak bulls, or weak bears do not imply a trend reversal or that the trend is about to pick back up. That implies possible consolidation or grinding price action. Neither of which are very profitable. We need high volume conditions for strong trending price action. Profit Target: I target the next daily, weekly, monthly high or the next point of contact on the trend line as a profit target or the bb lines on reversal plays. Stop loss location: Under the low of my confirmation candle or high of my confirmation candle (reversal) Entry technique: Wait for a pull back into your entry zone, prior to price making a higher high or lower low through your confirmation candle. I use the fib tool to find my entry price. I draw the fib from my next profit targets towards my stop loss location. I then use the.236 fib level to help me find my 1:3 risk reward entry Position Sizing: I never want to risk more than 1% of my account after stop loss. So I generally wait for pull backs into 1 of 3 position sizing zones. Half size: when my stop loss is 2 dollars from my entry price and my profit target is 6 dollars away ⅔ Size: when my stop loss is 1.50 from my entry price and my profit target is 4.50 dollars away Full size: when my stop loss is 1 dollar from my entry price and profit target is 3 dollars away. Please reference this handy position sizing guide Scaling out: I scale out using the R system and focus on trimming my position as my pnl is increasing. R = the difference between my entry price and my stop loss. So if my stop loss is 1 dollar away then 1R = $1.00. I want to make sure I am scaling out when it makes sense to do so. That helps me derisk and keep my lottery tickets. My first scale out is at 1r. So if my entry was at 100. My stop loss was at 99, then I’d close ¼ of my position at 101. At that point I don’t want to see this trade turn into a loser. So my stop loss is set at my pnl break even point. Then if the price kept moving, I'd close another ¼ of my original position at 2R. Or 102. Then I would move my stop loss to my entry price. From there I would hold the remaining half of this trade and scale out at my key pre market levels until I get stopped out. Things to look out for: 1. Make sure you have the volume! 2. The bigger the gap up the better the bb reversal setup. Big gap ups on weak volume create natural areas for profit taking. 3. Avoid inside bars by seeing bulls or bears fail first. Fake outs that trap one side lead to the smoothest trades. Be very patient and assume that these areas will behave as zones. 4. Don’t front run bearish reversals in low vix environments. 1/3 - No Trending Price Action / Inside Bar Green Candle (1) + Green decreasing vol (2) + Gap down (3) Only 1/3 elements of price action are telling a bullish story. But, if bulls were so weak yesterday, why couldn’t bears take over control? One for three conditions indicate indecision. That price action is consolidating and catching it’s breath. And we need to see a trend step back in. We are looking for trend creating or breakout price action. We have three likely narratives: a breakout higher, a breakout lower, price remains indecisive. Treat inside bars like you would a ⅓. You need to see a consolidation breakout in either direction. Price is compressed and needs an expansion event in either direction. The same confirmation standards apply. Types of Setups to look out for: 1. Level Breakout higher 2. Trend Reversal Lower Level Breakout Trades Setups: daily, weekly, monthly, or pattern breakouts. The setup triggers on the pierce through that horizontal resistance. Trade Thesis: Bulls could be strong, so we expect areas of resistance to turn into support Trend Reversal Lower Setups: ma cross, level breakout, green to red reversal, volume divergence reversal, failed breakout, bb breakouts, Trade Thesis: Bulls were not strong and failed. Now bears can reclaim control after a failed move. The confirmation standard is the same for both setups. And is described in detail below: The confirmation standard is the same for both setups, but are unique to these pre market conditions. They are described in detail below: Confirmation standard: occurs on the first 5/10/15 or 30 min candle that closes as a full body bullish, 2nd most bullish, or normal body bullish and holds the horizontal resistance on increasing outlier volume (breakout). On a trend reversal lower we want to see a 5/10/15 or 30 min candle that closes as a full body bearish, 2nd most bearish, or normal body bearish on a larger volume standard than any of the bullish volume so far today. The key difference here is that we do not have the basis of volume supporting this trade. We need to see the volume step in. Ideally, that means that the opening 5/10/15/ or 30 min candle has larger volume than any volume bar / candle we saw yesterday. We need to see evidence of increasing momentum. If you have evidence of increasing momentum, then you only need increasing volume relative to the previous bar as your confirmation standard or as described above. However, if you do not have evidence that momentum returned, relative to the previous day, then you need to wait for your confirmation candle to give you that volume standard. This means that you will get many close, but no cigar setup triggers. Fundamentally, this trade is waiting for either bulls or bears to reclaim control. Weak bulls, or weak bears do not imply a trend reversal. That implies possible consolidation or grinding price action. Neither of which are very profitable. We need high volume conditions for strong trending price action. Profit Target: I target the next daily, weekly, monthly high or the next point of contact on the trend line as a profit target or the bb lines on reversal plays. Stop loss location: Under the low or above the high of my confirmation candle Entry technique: Wait for a pull back into your entry zone, prior to price making a higher high or lower low through your confirmation candle. I use the fib tool to find my entry price. I draw the fib from my next profit targets towards my stop loss location. I then use the.236 fib level to help me find my 1:3 risk reward entry Position Sizing: I never want to risk more than 1% of my account after stop loss. So I generally wait for pull backs into 1 of 3 position sizing zones. Half size: when my stop loss is 2 dollars from my entry price and my profit target is 6 dollars away ⅔ Size: when my stop loss is 1.50 from my entry price and my profit target is 4.50 dollars away Full size: when my stop loss is 1 dollar from my entry price and profit target is 3 dollars away. Please reference this handy position sizing guide Scaling out: I scale out using the R system and focus on trimming my position as my pnl is increasing. R = the difference between my entry price and my stop loss. So if my stop loss is 1 dollar away then 1R = $1.00. I want to make sure I am scaling out when it makes sense to do so. That helps me derisk and keep my lottery tickets. My first scale out is at 1r. So if my entry was at 100. My stop loss was at 99, then I’d close ¼ of my position at 101. At that point I don’t want to see this trade turn into a loser. So my stop loss is set at my pnl break even point. Then if the price kept moving, I'd close another ¼ of my original position at 2R. Or 102. Then I would move my stop loss to my entry price. From there I would hold the remaining half of this trade and scale out at my key pre market levels until I get stopped out.