Daytrading Tips

Daytrader's Bulletin
Method - Part III

Low Risk Ideas: Risk Relative to Reward

A vital concept to winning in any endeavor is that of low risk relative to potential reward. As traders with substantial sums at risk, it is imperative that we identify time and price levels where our potential risk is minimal compared to our potential reward. 

Said another way: we would be willing to risk up to $750 on a trade, for the opportunity to gain $2,250.  This situation has a favorable risk/reward ratio of 3 to 1. We could be wrong two out of three attempts, be correct only one time, and still break even!  Here’s what that trade would look like: 

In the above example, the double-top (some would say a triple-top) formed just before and after 7:30 CST establishes a top with considerable resistance above it. 

Consequently, when price makes another run up into that area but gets rejected with a spike bar (dark cloud cover candlestick formation) at 7:58 CST, we can be reasonably confident of a leg down.

If price can go above the double-top at 983.50 by several ticks, we would know there is considerable bullish strength remaining and we could reasonably acknowledge that our trade was a loser. 

Our stop must be above 983.50 regardless of our fill; therefore, the sooner we are filled, in a falling market, the better. (The closer we are filled to 983.50, the lower our potential loss would be if we are wrong).

This trade turned out to be a winner and we exited at 979.65 at 8:17 CST for a profit of $750 per contract.

At the Bulletin, we have identified numerous low risk ideas with statistically high win percentages. We present these ideas to you when we issue Entry Bulletins. Take the Signals -- they are low risk ideas that work.

Using the Cycle Turning Points  with Support/Resistance

Because all traders are human, their behaviors can be observed and, over time, anticipated. This fact allows us to anticipate the markets’ turning points which we call Cycle Timing.

 Cycle Timings are those times of the day when a change in price direction is most likely. These times are plus or minus 10 minutes. 

There is no certainty that price will reverse or congest at these times, but knowing that there is a strong tendency for this to occur will give you that important “edge” that is so necessary for winning in these emotional markets. 

Support and Resistance are those price levels where the market will stop its movement. There are both short-term and long-term support and resistance levels. 

The short-term levels we call Intraday S/R level and the longer term levels we refer to as Key S/R levels. Whether price stops at an Intraday S/R level or a Key S/R level depends on the Day Type.

A Breakout Day will either slice through or stop momentarily for a retracement at an Intraday S/R level. A Cycling Day will stop and reverse at some Intraday S/R level.  A Reversal Day will probably stop and reverse at a Key S/R level.

When Key S/R levels and Intraday S/R levels cluster, an important support or resistance level has been established. A breakthrough of this level will usually see a freefall or blowoff market.

Any time price is below a Support or Resistance line, that line above it is termed “resistance”; when price is above a Support or Resistance line, that line below it is termed “support.” 

We make the distinction between Support and Resistance lines based on where price is in relation to these lines. At the end of the day, lines above the close are resistance and lines below the close are support.

Due to the frequent large gaps, lines labeled support may become resistance and lines labeled resistance may become support depending on where the overnight gap opens the market.

When Cycle Timings and Support/Resistance lines intersect, the chances for a reversal or movement out of congestion increases. Occasionally, the Cycle Timings will shift due to overnight news or large moves in foreign markets.

When this occurs, we will contact you via a Special Bulletin Signal. The factor should be added to the given Cycle Timings if preceded by a plus or subtracted if preceded by a minus. Thus a -5 shift would indicate that you subtract 5 minutes from all of the Cycle Timings for that day, and a +8 would indicate that you add 8 minutes to all of the Cycle Timings for that day.

The important cycles with the greatest potential are mentioned in the Commentary of the Overnight Update.