Stock Trading FAQs

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Trading Psychology

  • How to trade in a small account around pattern day trader rule?
    Original Question: I’m new to trading and i have a small account. Do you have any recomendation to trade in a margin account around pattern day trader rule? Should i switch my account to cash? I have only recently started to think about this topic in more detail and it…READ MORE
  • Do you go long a stock covered in a short sale report?
    Full question: Would you go long on a stock that was flashed by a short seller report, like MuddyWaters? ( Assuming of course it has a nice setup!) I don’t care much about what Muddy Waters, Citron or even Einhorn have to say. According to my experience the price and…READ MORE
  • Do you backtest your stock strategy?
    Original question: What (kind of backtesting) do you do to understand if your rules or system is likely to have a positive expectancy? I don’t do any backtesting at all. It doesn’t work as no algo can see what a trained chart eye can see. My “backtesting” is simply my…READ MORE
  • I experienced a huge loss, how can I cope with that?
    Get out of that losing trade if you are still in it, stick to your safety net rules and ignore your account balance! Continue to trade as if it was just a regular stop loss hit. In trading it is all about preserving emotional capital and remaining in a position…READ MORE
  • Are you sure that there is no holy grail trading system which I can 'discover' online?
    No I am not, but the odds are slim. There are certainly techniques which put the odds a little more in your favour than others and applying advanced statistics like the rest of the corporate and scientific world will make any system more efficient. But those kind of things require…READ MORE
  • Do you trade option ? Can we apply your theory to option trade?
    Original Question: Do you trade option ? Can we apply your theory to option trade ; if so whats the expiry we should take once the stock in QTS ? I don’t trade option! The reason is very simple. Why the heck should I make trading harder by having to…READ MORE
  • Could you please explain in more detail why you say that a stop loss hit is a good trade?
    Trades on which you only lose a predefined maximum risk % of your account balance are an integral part of my (or just about any) active trading system. Depending on the desired risk-multiple you know how your ratio of wins to losses has to be in order to statistically come…READ MORE
  • Stock Handling

  • How much position size is left after all scale-outs?
    Original Question: By the time you undergo all your scale outs in a winning play and you “bullet proof” your hold in the set up as you like to say, how much of the principle buy-in size is the position trade typical worth for you? I find myself scaling out…READ MORE
  • How do you "work the entry"?
    Original question: In some of your articles and Q&As you briefly mention, “working an entry” or “working a trade” and “during the process of establishing an initial position size, it is not always just a straight-out full-size order”. Can you please elaborate more on how you go about doing that…READ MORE
  • Scale-out & base profit lock-in interaction, how?
    Original Question: Aim is to make 3 x the risk I take.  Therefore if I have an initial stop of 3-4% the aim is to make at least 10% on the trade. If my account equity is $9000, my risk per trade is $90 and my profit target $270 Once…READ MORE
  • Can you elaborate more on your approach going short?
    Original Question: Can you elaborate more on your approach going short when the stock goes for a climax run and when you short weak rallies. Which criteria so you look for in the chart and what stocks do you consider? I basically follow the approach outlined by Bill O’Neil in…READ MORE
  • Protection stop level when the 2.6R rule is triggered
    Original Question: My question is regarding your protection stop on winning trades, once you are up more than 3R and trail your stop to 2.6R (even after a scale out), where do you place your protection stop? Higher that the 2.6R? First of all this question shows how well you…READ MORE
  • How does a proper cup and handle chart pattern look like?
    What Is A Cup And Handle Pattern? A cup and handle pattern is a price and volume formation based on mass psychological principles with 3 or 4 distinct phases. Such a pattern shows that a stock got rid of weak hands and that big operators accumulated size. It takes time…READ MORE
  • Where is the buy point in the Undercut and rally setup?
    Original question: Where is the buy point with the Undercut and rally setup? How do you scan for this setup? There are two valid buy points in an undercut and rally setup (#URS) because there are two proper undercut and rally patterns. Undercut and rally buy points Price undercuts a…READ MORE
  • Do you always use logarithmic stock charts?
    Generally speaking the log chart is the tool when you have to work with percentages and handle data which covers orders of magnitude.…READ MORE
  • What outstanding/float share ratio would be too high?
    Original question: In your Defense article, “My rules to minimize losses in the stock market“, in the Layer 6 section, you say, “Be careful trading in stocks with a high outstanding/float share ratio”. Approximately how high of a ratio would you consider a cutoff limit or at least a red…READ MORE
  • What is your take on the undercut & rally set up
    Full question: As your trading was influenced by Gil Morales, what is your take on the undercut & rally set up and why are you not using it often in real time. Well, first of all Gil didn’t use the Undercut & Rally (#URS) a lot back when I was…READ MORE
  • Is a shakeout good for a stock? (undercut and rally)
    As a matter of fact the undercut and rally setup is based on a shakeout. However if you are referring to shakeouts in stocks which are close to breaking out, then the answer is a yes! A shakeout is a test of demand and supply. When a stock is able…READ MORE
  • How to become a good stock chart reader?
    Full question: You mention that you need to put in the chart reading time to become proficient, however do you have any ideas on how to do this? Are there any specific exercises that one should perform? Or certain things to look for while going over charts? Well the procedure…READ MORE
  • Can your chart patterns be used on intraday charts?
    Can cup and handle patterns, undercut and rally setups or quiet and tight setups be used within intraday charts? Constructing a clothesline oftentimes requires to check the hourly chart to make sure it connects the significant tops which could be invisible on the daily. Proper setups however are only proper…READ MORE
  • What's your portfolio driven rule to exit trades?
    Full question: Can you elaborate more on your portfolio driven rule for trimming your winners? When an open position drops below the threshold do you exit right then or you usually wait to see if end of day it is still below that threshold? How far lower from your goal…READ MORE
  • Are your setups and red flags applicable to ETFs?
    My setups work very well when working with daily and weekly charts within my normal time horizon raning from days to months. Index ETFs or passive trading in general are dominated by huge funds (e.g. pension funds) or other big operators with very long time horizons. The techniques will likely…READ MORE
  • What is your average stop loss?
    Original question: What is your average stop loss? At what point are you willing to move it up? Average stop loss on a total equity basis is currently 1.17% (based on >1600 trades from 2015 until today). This includes the actual losses but also the initial risk of the trades…READ MORE
  • When do you scratch a trade that doesn't make progress?
    Original question: When you buy a stock but it doesn’t rally in 1-2 days although the setup is still somewhat valid, how long do you wait until you scratch the trade? When I enter a quiet & tight setup I wait until the stock launched either higher or price and…READ MORE
  • Do you add to a position or buy all at once?
    I typically buy the position at once if possible. However when liquidity is on the lower side I do make a test buy (1/3 of normal position size) first. This is important when you enter into quiet and tight action as liquidity can be a little lower. Depending on how…READ MORE
  • Do you invest as well in addition to your swing trading?
    Full Question: Do you invest as well in addition to your post and swing trades, meaning, long term investments (held for several years for growth and dividends)? If so, what percentage of your overall $ in financial instruments (%) do you have in longer term investments? I do invest in…READ MORE
  • What magnitude of price extension is a climax exit?
    Original question: In the Q&A section, you say that, “Climax moves are typically measured as a extension above the 10d or 50d moving average and they tend to peak via violent daily reversals”. Approximately how high on a percentage basis above these MA would you consider it a red flag…READ MORE
  • What timeframe makes the most sense if one is to study individual charts?
    The daily chart is your bread and butter timeframe. It is meaningful because many traders act end of day or use the daily closing price as a signal generator for the next day. Thats why you often see a continuation or carry over of end-of-day action into the next trading…READ MORE
  • What role do intraday charts play in your trading?
    I do watch 15min and sometimes 5min intraday charts to figure out how price acts around major support and resistance levels on an intraday basis. The two occasions where I always check intraday charts are both related to the momentum gap setup #MGS. Here I use them to evaluate if…READ MORE
  • How do you setup the stops for new position and winning position?
    For new postitions aka fresh money buys I employ a logical bottom up position sizing technique based on the real support and resistance levels of the respective stock chart. Once a stock is a winner (trading above my desired risk multiple) I set protection trailing stops. Such stops are not…READ MORE
  • Can you please show your Volume-by-Price settings?
    The volume-by-price indicator is called Volume Profile in Tradingview. I call the peaks in the profile “Peak Liquidity Levels” or short PLL. My way of reading and interpreting this indicator requires a very high price resolution. Tradingview allows to have 5000 increments on any given price axis and is still…READ MORE
  • What exactly is the 10% scale-out rule?
    Whenever I enter a swing idea and the stock blasts higher and exceeds +10% on an intraday basis I automatically close out 1/4 to 1/3 of the position into strength. No questions asked! Depending on the average true range of a stock and/or closeby major PLL levels, this threshold could…READ MORE
  • What is your favourite entry setup?
    My bread and butter entry is a shallow, perferably multi-day, quiet and tight pullback (#QTS) into a PLL or the 10 and 20 day moving average. Quiet means that the volume should be well below average and tight means that the daily price range is small compared to the recent…READ MORE
  • Why don't you use one of those expensive charting and screening tools?
    I did use them during my early years but over time I slowly realized that finding stock picks is the easy part of trading and that chart reading simply needs a lot of experience. All you need is a lightning fast charting package and a slim real time screener. Finviz…READ MORE
  • How do you read the volume-by-price indicator (PLL concept)?
    I watch out for Peak Liquidity Levels (PLL) and Low Liquidity Levels (LLL). The former is a price level where a lot of shares changed hands (high volume in the volume-by-price indicator) while the latter is a price level where little actual trading took place in the recent past (low…READ MORE
  • Do you use a wide screen to filter for quality?
    Yes, I narrow down the us stock market to a way smaller list of quality growth stocks to engage with. I only trade in names which fulfill the following criteria: Effective Market Cap >200-250M $; Price >7$; Shares/float ratio <20 (I violate this occasionally); Average Daily Dollar Volume > 2-3M…READ MORE
  • Do you believe in moving stops to breakeven or do you let the trade play out unless there’s a ‘'red flag’’?
    Short answer: No I don’t move stops to breakeven! Long answer: I never ever move my initial stop loss before a trade hits my R-multiple threshold. However this is mainly due to my sharp stops. If you use wider stops it might make sense to sell on a proper red…READ MORE
  • When you say “watch if it can hold (support)” how long are you wanting to see it stay above the level?
    As a general rule of thumb you want price to hold important reference levels on a closing basis. This means that you can allow for an intraday move below the mark. This is commonly referred to as a shakeout. However you must be aware that some shakeouts can be severe,…READ MORE
  • Aside from the 10% rule how else do you decide to trim your winnings?
    The 10% rule helps to secure my desired risk-multiple of the given setup. Most setups are between 2.5 and 3R. Independent of the 10% rule I always exit the trade when it drops below a specific risk-multiple threshold after hitting the goal risk-multiple before. This rule is portfolio and not…READ MORE
  • Do candle formations have a important role in chart reading to you?
    Original Question: I often see you mention island gaps, inside and outside days… Do candle formations have a important role in chart reading to you? First of all candlesticks and HLC or OHLC bars contain the same information. So what we are talking about are price and volume formations as…READ MORE
  • How do you go about entering a powerful, breakaway gap?
    A momentum gap setup or short #MGS is one of the best entry setups out there if you adhere to a couple rules and concepts. I always enter a initial position (typically 30-60% of regular size) right at the open of a powerful #MGS. Once price pulls back intraday I…READ MORE
  • Have you ever considered using stop loss orders outside market hours?
    No never! It makes no sense to place trades outside of market hours as there is not enough liquidity to truly find the correct price direction. It is basically a giant mosh pit and I don’t want to be involved in this at all. When a stock gaps down overnight…READ MORE
  • How do yo adjust your weekly chart to form the appropriate PLL zone in a consistent manner?
    Good question! First of all there is no consistent manner. What you want to do and what I can’t show you by simply posting charts is to figure out where and when the PLL was/is formed aka where and when the volume came in. Tradingview only shows you the PLL…READ MORE
  • What is the average duration of your swing trades in days?
    Average holding time when only considering winners is 13 trading days. But the range goes from a couple days up to half a year. When you include stop loss hits it is shorter but I never calculated that number. I am not a day trader and while I scale-out quickly…READ MORE
  • What is a red flag for you which would make you exit a trade?
    Mostly huge climax reversals and bearish outside day reversals on large volume and moving average (MA) violations where a stock loses support after adhering to a MA for weeks to months. But I also run for the exit quickly when a stock retraces a huge move right after flashing me…READ MORE
  • How do you know if an idea is a position or swing trade?
    You must know that swing trading was my solution to engage in smaller high octane stocks. Most of the time I can only make an educated guess beforehand. But typically the smaller names will have the most aprupt moves which will make me scale-out more aggressively. Scaling out a lot…READ MORE
  • Portfolio Management

  • How much position size is left after all scale-outs?
    Original Question: By the time you undergo all your scale outs in a winning play and you “bullet proof” your hold in the set up as you like to say, how much of the principle buy-in size is the position trade typical worth for you? I find myself scaling out…READ MORE
  • Scale-out & base profit lock-in interaction, how?
    Original Question: Aim is to make 3 x the risk I take.  Therefore if I have an initial stop of 3-4% the aim is to make at least 10% on the trade. If my account equity is $9000, my risk per trade is $90 and my profit target $270 Once…READ MORE
  • What's your “open heat” when all your stops get hit?
    It depends. On the first logical market bottom I engage with at least two or three stocks, each one with roughly 1% Maximum Risk per trade. I am not talking about the first reaction bounce but rather the first real skill based bottoming “call” based on perceived bullish clues in…READ MORE
  • How to calculate position size when testing the water?
    Original Question: How do you calculate your position size when you are testing the water? When I am testing the waters after a period of little opportunity (typically coming from a market correction) I follow my normal position sizing procedure as explained here. However I control risk by keeping my…READ MORE
  • Should I reduce size when losses start to add up?
    Original question: Do you trade smaller when you notice your trades are not working out as they used to? Not an easy one to answer. Altering position size based on portfolio issues is generally a flawed approach. I have touched the theme here in this article about proper position sizing.…READ MORE
  • How to trade in a small account around pattern day trader rule?
    Original Question: I’m new to trading and i have a small account. Do you have any recomendation to trade in a margin account around pattern day trader rule? Should i switch my account to cash? I have only recently started to think about this topic in more detail and it…READ MORE
  • What's your portfolio driven rule to exit trades?
    Full question: Can you elaborate more on your portfolio driven rule for trimming your winners? When an open position drops below the threshold do you exit right then or you usually wait to see if end of day it is still below that threshold? How far lower from your goal…READ MORE
  • Do you go to 100% cash when the market rolls over?
    OriginalQuestion: How often, or do you ever get to 100% cash when the market starts to roll over? Or do you just switch to short positions instead? (e.g. selling the previous leaders) Well, I often go to almost 100% rather quickly when things get ugly. I quickly part ways with…READ MORE
  • Do you add to a position or buy all at once?
    I typically buy the position at once if possible. However when liquidity is on the lower side I do make a test buy (1/3 of normal position size) first. This is important when you enter into quiet and tight action as liquidity can be a little lower. Depending on how…READ MORE
  • Do you backtest your stock strategy?
    Original question: What (kind of backtesting) do you do to understand if your rules or system is likely to have a positive expectancy? I don’t do any backtesting at all. It doesn’t work as no algo can see what a trained chart eye can see. My “backtesting” is simply my…READ MORE
  • How would you increase exposure coming from cash and managing a large portfolio?
    Original Question: Portfolio Management(rather than individual trades): How would you increase exposure coming from cash and managing a large portfolio? ie, how to decide how many initial stocks, kept for how long before investing more, how much open risk, etc? Answer: I try to act on early opportunistic signals to…READ MORE
  • How do you setup the stops for new position and winning position?
    For new postitions aka fresh money buys I employ a logical bottom up position sizing technique based on the real support and resistance levels of the respective stock chart. Once a stock is a winner (trading above my desired risk multiple) I set protection trailing stops. Such stops are not…READ MORE
  • What is your ratio of swing to position trading?
    Position trades typicially consume between 40 to 60% off my account size. I use the remaining 140 – 160% for swing trading in more explosive names. I rarely go over 200% on an intraday basis and when I do it it is mostly on the short side. I scale out…READ MORE
  • How do you determine position size?
    I use a bottom up position sizing technique where I calculate the correct size according to logical stop loss and price target levels of the stock at hand. I only trade the ideas which exceed my profit/risk threshold (Risk multiple). I set the max risk I am willing to lose…READ MORE
  • Could you please explain in more detail why you say that a stop loss hit is a good trade?
    Trades on which you only lose a predefined maximum risk % of your account balance are an integral part of my (or just about any) active trading system. Depending on the desired risk-multiple you know how your ratio of wins to losses has to be in order to statistically come…READ MORE
  • Market Timing

  • Are your setups and red flags applicable to ETFs?
    My setups work very well when working with daily and weekly charts within my normal time horizon raning from days to months. Index ETFs or passive trading in general are dominated by huge funds (e.g. pension funds) or other big operators with very long time horizons. The techniques will likely…READ MORE
  • Do you go to 100% cash when the market rolls over?
    OriginalQuestion: How often, or do you ever get to 100% cash when the market starts to roll over? Or do you just switch to short positions instead? (e.g. selling the previous leaders) Well, I often go to almost 100% rather quickly when things get ugly. I quickly part ways with…READ MORE
  • How do you decide when to be fully invested and when to keep some cash?
    Original Question: How often are you fully invested? How big is your typical cash position at any given time? How do you decide when to go full and when to keep some cash? Related Q&A: how-would-you-increase-exposure-coming-from-cash-and-managing-a-large-portfolio/ Fully invested means that I am 100% invested. The other 100% margin is only…READ MORE
  • Now seriously, how do you manage to catch all those monster swing trades right before the take-off?
    The trick is to just enter setups when they show up in real time. I may get stopped out a couple times before hitting the homerun. When I hit it I brag about it on twitter while I sweep the stop loss hits needed to ‘nail’ it under the carpet.…READ MORE
  • Do you believe in moving stops to breakeven or do you let the trade play out unless there’s a ‘'red flag’’?
    Short answer: No I don’t move stops to breakeven! Long answer: I never ever move my initial stop loss before a trade hits my R-multiple threshold. However this is mainly due to my sharp stops. If you use wider stops it might make sense to sell on a proper red…READ MORE
  • You just rotate to different groups of stocks that are hot at that time. Right?
    Actually that is exactly the opposite of what I really do or try to do. Most of the time I have a couple position trades running which matured over time (couple months). Many of those started as swings. I then add most fresh money swing trades when I see quality…READ MORE
  • What does a proper setup look like in stock X?
    That is a very good question indeed! From hearsay and my own experience I can tell you that most money is lost when traders jump back into a stock too early. While nobody can predict the short term, let alone long term price development it is very important to always…READ MORE
  • When shorting, do you short the index ETF, buy inverse ETF, or individual stocks?
    The market pushes me to short at least one of the high flying big stocks at the time when they flash some climax reversals. Other than that I rarely short the initial break off the highs but rather wait for reaction rallies into resistance in the former leaders which had…READ MORE
  • When you say "this is a good day to scan for #QTS". How do you know that?
    The answer is probably a lot more simple than what you expect. A quiet and tight setup (QTS) is not a one day signal! It happens when a shallow and constructive pullback pattern into support plays out nicely and then turns tight compared to the prior daily range of the…READ MORE
  • general

  • When will the Chart School article series be published?
    Original Question: In two Q&A answers (“How to become a good stock chart reader?” and “Do candle formations have an important role in charting reading to you?”), you mention a large series you were working on called “Chart School” composed of 6 chapters. Was this ever finished and published? I…READ MORE
  • Do you only trade stocks? How about ETFs, BTC / ETH?
    Original question: Do you plan on making BTC / ETH as a trade idea if/when they become opportune? Or strictly stocks? Good question! The trade ideas I publish in the service are ideas which I consider as suitable trades for my personal trading account as well. Here is a list…READ MORE
  • Where to find daily dollar volume in Finviz screener?
    Original question: Do you have a screenshot of your basic quality screen settings on finviz? I’m a little confused about daily dollar volume. Daily dollar volume is price multiplied by average volume (50d moving average). I want to know how much money is changing hands each day in a stock.…READ MORE
  • What is your trading setup? Laptop or desktop PC?
    Original question: Hi, thank you for the resources & and the experience you share, they’re invaluable. I have a more technolical question regarding the tools you use – by tools I mean the hardware. What is your trading setup? I know this has no impact on performance, but wondering if…READ MORE
  • How to export from Finviz screener to Tradingview
    original question: Made the switch to TradingView (TV) & FinViz (FV). Please can you tell me if there is a way to export results from a FV custom screen including both the ticker symbol & the exchange it is traded on as required by TV? There are two ways to…READ MORE
  • How to find quiet and tight setups in real-time?
    Original Question: How to find quiet and tight setups in real-time without the hassle of actively screening. Finviz ELITE provides you with real time quotes; a real time screener with 10s autoupdate (2) and a awesome screener alert (3). The alert allows you to create a quiet and tight screen…READ MORE
  • Do you have real time data on TradingView and broker?
    Full question: Do you subscribed to real time data both on TradingView(TV) and Interactive Brokers(IB)? Given that your realtimesignals/alerts are generated from TV, realtime market data subscription is not necessary on IB. Of course, with market data subscription comes more convenience, appreciate if you can share what’s your optimal configuration…READ MORE
  • Do you do any day trading?
    Full question: Do you do any day trading? I know you like to enter full size around the base/moving averages as you should in a trend trading system but do you have any playbook set ups for acting on day trading set ups such as adding more size to your…READ MORE
  • Can you please show your Volume-by-Price settings?
    The volume-by-price indicator is called Volume Profile in Tradingview. I call the peaks in the profile “Peak Liquidity Levels” or short PLL. My way of reading and interpreting this indicator requires a very high price resolution. Tradingview allows to have 5000 increments on any given price axis and is still…READ MORE
  • Do you disprize the CANSLIM trading system?
    In no way! William O’Neil’s books are great and got me hooked in the first place. I actually label myself as a technical fundamentalist or technofundamentalist. However over the years I realized that you have to look beyond the CANSLIM ‘frontend’ with all the labels and ‘simplified’ rules. While I…READ MORE
  • How would you describe your approach?
    I trade in my own little universe of quality and fundamentally strong names which I scan for opportunisitc and non-obvious entries. I realize profits into unusual strength and logical price targets. Small and mid cap names often turn into swing trades naturally due to my aggressive scale-outs while large cap…READ MORE
  • What do you think about building automated trading algos?
    My current stock trading is solely discrete (read: non automated), my trading partner however is trading the currency markets fully automated. He is working on our automated system for over 5 years now and is making huge progress. One major improvement was the adaption of my PLL technique for forex,…READ MORE
  • Do you trade option ? Can we apply your theory to option trade?
    Original Question: Do you trade option ? Can we apply your theory to option trade ; if so whats the expiry we should take once the stock in QTS ? I don’t trade option! The reason is very simple. Why the heck should I make trading harder by having to…READ MORE
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