Monday, May 27, 2019

Buy and Sell Zone Setup examples


Buy and Sell Zone Explanation

Forming a Buy/Sell intraday zone can be done one of 2 ways.

A. Simplest version is trading off Daily Charts with candle's that give off Wicks in direction of the trend. Entry is anywhere between the top of the wick (open or closing price of the candle) and midway of the wick. The stop is below the low of the wick. 

Below is an example using the SPY over a 4 week period. The trend is up on the daily chart and 8 Times the SPY gave off trade-able Buy Zone wicks to form  intra-day trading opportunities. Entry can be anywhere from the top of the wick to midway. Stop below the wick. This setup will make several small to mid size gains and at times hit the 3-1 home run. Key is maintaining money management, keep your stop and plan in place, and exiting before the end of the day. With this setup you can ride the horse of a particular trending stock or eft until it kicks you off and the trend changes. Once a wick is tested you can void taking a trade inside the wick. If a wick isnt tested on a pullback within 3 days I move on that wick.

B. Second version starts with identifying a zone on a larger time frame (30/15 minute time frame) and using the lower 5/1 minute time frame to fine tune the entry. This version has a smaller stop and larger reward and is more fine tuned.

Larger Time Frame zones can be formed from:
  1. Larger empty candle wicks that start a move on the 30 minute chart
  2. Daily Chart shows a WRB break through of prior price point on the daily chart putting the stock on the watch list for the next day. The daily chart below shows an example with the break of the low of 3 days prior.
  3. Intraday on the 30 or 15 minute chart one of these the three patterns form. 1. A rally (series of higher highs/lower low candles) small base near the high after the rally (1 to 4 narrow range bars or inside bars to form the base) and rally again.The top of the zone is the break from the base and the bottom of the zone is the bottom of the base. 2. A V pattern. A Rally (series of higher highs/lower low candles), a pullback of one to three candles, followed by a base forming of 1 to 3 narrow range candles or one hammer candle, followed by a rally again (forming the other side of the V) The zone is formed around the base of the middle part of the V - the Hammer or small base of narrow range candles. I tend to use the prior red bar opening price before the green bar that leads the way to higher highs as the top of the zone (upside down V pattern is for a sell zone) 3. Breakout from a flat top base, triangle base, or clear breakout from the 5, 15, or 60 minute high of the day. The pattern shows a CLEAR breakup from the price rang
The lower time frame entry is base off find where the move started. I look for a strong 5 or 1 minute candle in this area. Once I find the candle I look for the prior red candle and mark the open price. I use this as my entry with stop placed under the base of the strong up move candle.

I always want a fresh test of the Zone: On a test of the zone, look to enter on the 1st entry back to the zone. The more test's of a zone the lesser the odds for a continuation and bounce.
  • Risk/Reward: Minimal 3x reward offered to the next zone or resistance area. Set the trade and walk away, no need to manage.  
Below is an example of a trade starting with forming a zone off a Daily Chart price point break using the following steps of the larger time zone 15 minute chart and using the lower time frame 5 minute chart to form an entry.
  • Daily Chart shows a clear break
  • I use the 15 minute chart to identify the V zone setup. (upside down V with the sell zone). 
  • I then go to the 5 minute chart to form the entry.
DAILY CHART
 

15 Minute Chart

5 Minute Chart


Futures NQ: Here are two 30 minute buy and sell zones. After the zone is formed I scale down to the 5 and 1 minute charts to fine tune the entry. Notice the large empty candle wick on the 30 minute candle that started both the up and down moves.



ARMN: Intraday example of a Base and Break on the 30 minute Chart with an inside candle. Zone was tested 4 days later.


AG: Intraday example of a flat top Base and Breakout on the 5 minute Chart for a precise entry. Zone was tested the next day.


 BZUN Nice breakout on the Daily chart with the zone formed around the break line with the bottom of the zone the series of candle wicks. The next day price traded back to its buy zone.

FBHS: Nice breakout on the daily chart, Next day FBHS pulled back to its buy zone where the breakout occurred.

TRIP Gaps up and trades half way into its sell zone which was formed around a Daily Chart breakdown. The 15 minute chart shows the V pattern pullback at the break point and selloff. .

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Disclaimer

I DO NOT MAKE RECOMMENDATIONS TO BUY OR SELL SECURITIES - I JUST POST TRADES I MAKE OR FIT THE RULES OF MY TRADING PLAN ON A DAILY BASIS. DO YOUR OWN DUE DILIGENCE - YOU ARE RESPONSIBLE FOR YOUR TRADES, INVESTMENTS, AND DECISIONS! ALL CHARTS COURTESY OF TRADESTATION, SCHWAb & TD AMERITRADE