[Bearbull]

Trading Wisdom of Vadym Graifer: Although he talks about stocks , it is equally applicable to all markets.

IDENTIFICATION OF TRADING OPPORTUNITIES

The first stage is identifying the basket of stocks to watch. Two major criteria should be applied: (1) Activity and (2) Setup. You want to go where activity is, and this leads you to watching pre-market gaps and volume. Next step is to identify the type of action. This is very important because the action might be such that you never see any familiar setup that would give you a reasonable trade. There are plenty of movements that we can't utilize to any "trading" extent as opposed to "gambling" extent. In other words, if you put on the trade because you see the setup, you are trading. But if you just go for the action without seeing a setup, you are gambling. You might lose on "trading" trade and you might win on "gambling" trade, but in the long run you will lose if you go for pure action without any attempts to identify the setup. When the trade shows a familiar situation, that's where you get probabilities on your side. You will often sit and wait in spite of the fact that there are plenty of hot movers around. But you have to ignore everything that moves in a way that doesn’t allow you to read the movement within your system. (A bit more complicated is trying to find a situation which might create an opportunity but the activity isn't there yet. Doing this you have to determine your stop point in advance, in case the action never occurs or the stock does the opposite to what the setup prescribes.)

After (1) spotting the activity and (2) identifying the type of activity comes (3) defining scenarios in terms of IF - THEN. You see, for instance, a stock approaching the higher limit of the range and your setup is buying the breakout because you identified the trend of the stock as an uptrend and are going to buy the high, going with the trend.

Your set of scenarios: (these are just examples, not a description of the strategy)

Buying at 20 - I buy

IF pullback to 19 5/8 THEN I get stopped out because 11/16 was the support on last pullback.

IF movement over 20 THEN I move my stop to 19 3/4 because stock shouldn't drop that far if it's really strong.

IF stock moves to 20 3/8 THEN I move my stop to breakeven.

IF stock moves over 20 5/8 THEN I sell half and move stop to 20 1/4 on remaining half.

IF stock moves up too fast on big volume THEN I sell entire position.

Note that the scenarios are built in such a way that any kind of market action triggers one of your reactions. It goes in accordance with our general approach: let the market tell you what to do.

After your set of scenarios is done, you have pretty much "programmed" your behavior and they become your psychological support. You have already predetermined your stop level and assumed the risk, so if the stock acts nasty, you’re not caught off guard; it's merely one of your scenarios. Knowing that you were not trying to predict anything, you take it calmly. If the stock goes in your favor, you know what to do next and there is no room for overexcitement and all those "Go ABCD!!!" which show unprofessionalism. Rather, another set of scenarios kicks in, moving your stop up and selling of half of your shares as you secure your profit, or selling it in full if you are a scalper or if the trade was intended as a scalp from the very beginning. After the trade is closed, you get back to monitoring and looking for activity. A full cycle is completed and now it's time for a new cycle.

As a daytrader, you spend much more time on the sidelines, waiting for the right opportunity to present itself. You are filtering out everything that:

1. Doesn't fit your risk criteria.

2. Moves in a way that doesn't allow you to identify a familiar setup.

3. Sets up but still doesn't trigger the trade. This means that, for example, AMZN goes to 32 1/2 where it should be a short but selling never hits this level. Therefore, the trade is not triggered. Either we see the setup or we let it go. Trading outside of a setup is gambling.

This programming of your action is very important as it brings structure to what would otherwise be chaos. You structure your own behavior putting some kind of algorithm in it. Eventually, that is what disciplines you and creates a favorable environment for getting rid of emotional imbalances. When you act within predetermined scenarios, you don't let actions trigger your ego. Ego raises its head when you expect the stock to do something, and it does the opposite. If you don't expect anything but are ready for any turn of events, nothing wakes the ego.

Attempts to jump on everything that moves leads to inevitable frustration as stocks act randomly for a trader doing this. They can't act any different because he looks at them randomly, so he takes the trades randomly. As soon as the trader has formed a system of setups and scenarios, where the setup is the trigger for the action and the scenario is the algorithm of the action, his behavior ceases to be chaotic and moves from gambling to trading.

The "setup", in other words, is not manufactured by some guru, nor does it have a cute name, unless you choose to give it one. The setup is rather a set of circumstances which you define which triggers an entry. It's up to you to impose order on the data stream; to -- in the context of this thread -- find those markers of buying and selling interest, buying and selling pressure, buying and selling exhaustion; test them to determine whether they show a higher probability of trading success than a random entry; decide exactly what it is you want to see before entering a trade. That's your "setup".

[DbPhoenix]

In all fairness to Vad, the last paragraph in the post above is me, not he, from something I posted four years ago. Funny how these things resurface.

[Bearbull]

Originally Posted by DbPhoenix »

In all fairness to Vad, the last paragraph in the post above is me, not he, from something I posted four years ago. Funny how these things resurface.

I received the quote from a trading colleague, so could not tell which part was yours.

Still it is very pertinent and hope newcomers will take it on board

[Bearbull]

This is very much pertinent to the discussion. Am told by my trading friend it is again extracted from one of Db's file, hope Db has no objection, where he goes into details of Demand and Supply(deals with stocks but applies to any market) but without use of any charts and the reason..... Well read on.

REAL WISDOM OF TRADING

I'm sure it has occurred to at least some readers that if the accumulation-distribution pattern I've described here were dependable in all circumstances under all conditions, then all stocks would have a pattern of up, across, down, across, up, across, ad infinitum. This is clearly not the case. The markets are not represented by a straight and narrow highway. A far better metaphor would be a roiling sea of rallies, reactions, markups, markdowns, shakeouts, thrusts, buying and selling climaxes, turning points, all happening all at once in timeframes varying from minutes to years and with all the accompanying eddies, currents, inversions, and undertows. This is the primary reason why I haven't provided graphic examples here of the concepts I've presented. The point is not to find some stock somewhere that typifies accumulation or a shakeout and use it as a template for all future investigations of manifestations of changes in demand and supply, but to understand at a deeper level how the threads of demand and supply, accumulation and distribution, and the relationship between price and volume all intertwine. What I've provided here is only the beginning of an exploration, not an exhaustive treatment of the subject.

Each chart you look at, instead of being "typical", will instead be unique. Each movement of price and volume in a chart has meaning only within the context of what has gone before in that particular chart. Therefore, solving the puzzle of the dynamics of demand and supply will be a new challenge with each chart. Achieving mastery of this skill will take time, if mastery is ever achieved at all. But applying even the most basic of the principles outlined above will result in an almost immediate payback, if not in money gained, then in money saved.

[DbPhoenix]

Lest this thread wither, I refer interested readers to review a series of posts made to the EOD thread. They do go on a bit, but they jibe nicely with the material that Bearbull et al have posted here. The process of identifying trading opportunities is after all the same, whether one is trading EOD or intraday.