Course: Bear Bull Traders Trade of the Week October 2, 2020

Bear Bull Traders Trade of the Week October 2, 2020

Strategy Name – 1-minute Opening Range Breakout (1 Min ORB)

For this strategy, you are looking for stock in play (good pre-market action, catalyst), that has gapped up or down. The opening range (1-minute candle) typically helps set the tone for the day on the stock. On this strategy, you are looking for a strong bias one way or another, and a “breakout” of the opening range (first one-minute candle, in this example). This strategy could be applied to a 2-minute, 5-minute, 15-minute or 30-minute time frame as well.

Time: In theory, it could be any time of day. For the 1-minute ORB, its usually the first 5-10 minutes of the trading day. Likely the 2nd minute.

Indicators:

  • Gap up/down more than 2% from the previous day close price
  • Good pre-market volume (Usually > 250K shares, the more activity generally the better)
  • Stock should have a good catalyst, which will help drive momentum for the stock in the day
  • Clean pre-market action à The stock should have clean candles as it moves through the pre-market, not a block trade or choppy price action.
  • A daily chart that helps me develop a Bias and strategy for trading.


Confirmations:

  • The stock should not move more than 1 ATR in the 1st candle
  • The stock should not be too extended from VWAP in the 1st minute, creating a poor risk/to reward
  • The stock should have clear profit targets, to help identify a good risk to reward.


Entry Signal
:

  • 1st candle to break the 1-minute opening range (1st candle)
  • Volume


Stop Loss
:

  • VWAP OR
  • Key Technical Level (if VWAP is close to a tech level and you want a little more room)


Target
:

  • 2R for the entire trade, with Partials at key technical levels/resistance points


Rules:

  • Do not chase the trade. If it moves without you and you miss your entry, wait for an ABCD pattern/pull back
  • Don’t jump the gun. Don’t enter before the 1-minute candle closes
  • If there is a key technical level near, see how it reacts to it before deciding which way to take the trade.
  • If the stock is too wicky (a large wick to the up or down side, do not take the trade)

 

Trade Management:

$NIO made my watch list, as it was gapping down over 4%, with 5 million shares traded. Additionally, it had just released news on Q3 deliveries, up over 150% from the prior year. Pre-market action was clean, and the daily looked interesting as $NIO had held support near 20.80 for the last 2 days. The two key daily levels I had were: 20.80 à Support. 22.80 à Resistance (all time high).

At the open, $NIO opened, but volume looked really light. Normally, this would make me look at another stock. For $NIO, this action had actually been typical the last few days.

I really didn’t have a BIAS on the stock early, since it gapped down (potential short), but had a good news catalyst (potential long). Since it was near the daily level of $20.80, I wanted to see how it interacted with that price point. If it lost (and held below) 20.80, it would be a short. If it held above 20.80, it would give me a long BIAS.

As it opened, the stock immediately broke down below $20.80, but quickly bid back up (came back up above 20.80). This gave me a long BIAS. As the first candle closed, it had a high of 20.95, with a close price of 20.89.

As the 2nd candle formed, it went down to 20.88 (still inside the first candle’s body), then price and volume started to increase. As it reached my entry (break of 20.95), it was above VWAP, another signal for a long. I entered the trade at 20.95. with a stop below VWAP (about 20.85).

My Initial Profit Target would be 2R (I risked about 10 cents, so it would be 21.15), and then I’d partial at key daily levels and use VPA to determine how I’d manage the trade after that.

I took 10% partials at ~2R, just above the level I had marked on my chart, to lock in profit. I then took more 10% partials at a few levels I had marked on my chart (21.20 – a daily level, 21.38 – the pre-market high, 21.50 – daily level though my execution was slow)

I added (1) when it came down below premarket high and quicky started to bid back up. Since it held this level, and the stock seemed strong, I added to my position. My new stop loss would be about 21.20 (my daily level)

I added (2) when I saw it tested VWAP and premarket high, and it held. Again, this showed strength. My new stop loss was now below VWAP (21.30)

I added (3) the 21.72 level when I saw volume coming in at the daily level (21.72) (red partial was hotkey error), and the stock had help multiple previous levels I had marked and showed strength. My new stop loss was 21.50.

I took heavy partials at 21.85, 21.98, and 22.05. The reason I partialed heavily is because NIO has an ATR of about 1.37. At this level, it had moved about 1.20-1.30 for the day already, so thought the move could be done.

Since I work at 8AM pacific, I had to set range/stop orders for the next few profit targets (22.50 and 23 – psychological levels) with my stop at break-even. Eventually, I ended up getting stopped out at break-even.

What was good about this trade

Not having an initial bias and waiting for confirmation on which direction to take the trade. Signals were initially mixed (a gap down, with good news), so waiting for confirmation was key.

What was bad about this trade

On my 3rd add, I added into resistance. I should have added when it broke resistance and came back and tested it (the very next candle à same price, lower risk)

When I set my range order, I set my new stop at break-even (so I thought), but I actually set it to my last entry. If I set it to break-even, I would have set it at 21.50. I accidentally set it to 21.67 (my last entry). It worked out, as I would have been stopped out either way.

Daily Chart – showing key level at 21.80