High probability high reward-risk day trading using daily support-resistance.
Many traders look at only intraday charts (single or multi-timeframe) to decide day trade entries. I use a different technique to identify day trades.
This specific technique I share here relies on stocks that have significantly gapped up or down and then hit trendline resistance or support and reversing from there.
These are the specific steps I follow.
Step 1) Use a scan to identify stocks that have a significant gap up (down) right at market open using real-time scan.
Step 2) From the result of 1, identify stocks that are hitting resistance (support) auto-smart-trendline on the daily interval.
On a list of hundreds of stocks, these two steps can be carried out using a robust trading system in only a few minutes.
When I carried out these two steps on the USA market yesterday on Wed 17th Oct, starting with a list of 300+ stocks, I located only two stocks that met the criteria of 1 and 2. These were CWH and LRCX. I could use either CUE Elite or CUE Global technical trading system to achieve the same result. Attached charts are using CUE Global technical trading system. I have marked as 1 the points where the stocks hit Memory trendline resistances on daily charts.
Note: You may click on the charts below to enlarge them.
In both of these cases, the stocks tried to pierce above the Memory trendline resistances and reversed, creating a false upside breakout. Those tend to give very low-risk short opportunities, with the stop just above day’s high or intraday-swing high on the real-time intraday chart.
Step 3) Look for low-risk day-trade opportunity using intraday (5, 10, or sometimes 1-minute chart).
CWX gave a Gap short day trade setup soon after market open that you could take using 1 or 5-minute chart. For LRCX, the short trade could be taken using a 1-minute chart. These points are marked as 2 on respective intraday charts.
Whether to use 10-minute, 5-minute or 1-minute chart is partly a personal preference and partly a function of how the intraday dynamic pivot levels are being created as the stock starts to move after the open. I mostly (about 70-80% of the time) stick with a 5-minute chart if I am entering trade in the morning half. If I am entering trade in the second half, I am open to using a 10-minute chart.
In this specific case, I used a 5-minute chart for CWH. For LRCX, the Early Range pivots were wider apart and I decided to move to 1-minute chart for a more precise (lower-risk) entry.
I have marked the potential risk (distance from entry to stop level) and the potential profit (distance from entry to target level) as point 3 and 4 respectively on the intraday charts of both the stocks. You can see that the reward was significantly higher than the risk taken in each trade.
This is my preferred way of trading. To identify trades with unambiguous signals where the probability of success is high (in these cases, owing to the use of longer-term daily resistance lines and false breakouts to decide trade direction) and a reward-risk ratio that is attractive (in these examples, that was achieved using intraday dynamic pivot levels and precise entry signals).
This is one example of using longer-term daily chart support-resistance to precisely enter day trades on intraday charts that are high-probability and high-reward trades. You may use variants of this technique using other supports-resistances as well.
Using CUE technical trading systems, CUE Global or CUE Elite, the technique can be executed in a matter of minutes. And you can probably identify such trading opportunities almost every day.