Day Trading Outline & Chart Examples
NOTE: In order to see images clearly and have the text legible, please click on the chart with the magnifying glass cursor after you have opened the image. This will increase the size to its fullest and the text will be clear. Enjoy!
Step 1:
Check the Daily chart to see if there are any large scale signals that may be important to you even as a very active trader i.e. are we running into the 100-day moving average, a major trend line or the high/low from another key day? We don’t have to trade with the daily trend, but we must be aware of specific levels that may pose a threat or help us out.
Step 2:
Move down to lower time frames including the 180- and 60-minute charts. Determine if there is a strong underlying bullish or bearish trend, or if the pair is in a range. We want to work primarily within the trends that are shown here, but it’s not an absolute must. After all, if there’s a reversal we don’t want to fight it.
Here we will also identify key levels of support and resistance. The easiest way to do this is look for turning points where the pair recently peaked or bottomed out. These established S&R levels will likely play a role again. We can also use trend lines here. Fibonacci Retracement and Extensions can also be applied. Again, the goal here is to find important support and resistance levels, regardless of the method used.
Step 3:
Move to the 15-minute chart to see the trends, support and resistance levels you’ve identified in greater detail. Volume indicator should be added here. Take note of whether the 15-minute trend matches the trend(s) seen on the 180- and 60- minute charts. If the trends match there are very few circumstances where we want to fight it. Therefore, we are looking to trade primarily in the direction of this 15-minute chart’s trend – bullish, bearish, or sideways.
Step 4: (optional – Super Active)
Move down to a 5-minute chart. Keep the volume indicator on here as it will give you very good insight to whether there is more conviction behind the buying or selling (how big are the volume bars on green candles versus red ones??).
Bullish or Bearish Trends:
When the trend we are playing is clearly bullish or bearish we have 2 entry options.
1) Entering on a retracement. This is the preferred method. By waiting for a retracement we are looking to go long (buy) only from support levels and short (sell) only from resistance levels. This allows us to set much tighter stops and opens the door to bigger profit targets. Many times, we will watch a 5-minute candle as it tests the support or resistance, looking for confirmation that it will hold until the candle closes. Volume is key here. We want the retracement volume low, indicating that the conviction lies with the direction of the trend.
2) Sometimes we do not have the luxury of finding a retracement when the market is running in one direction for a while. In such circumstances we will play a breakout strategy. This means we wait for a 5- or 15-minute candle to break through a support or resistance level, close outside of it, and then we can take the trade. We are looking for big volume on the candle that breaks the support or resistance. In the next few minutes, if the pair reverses and pushes right back through the level that was just broken, on strong volume, we dump the trade and reevaluate.
In a range we are looking for FAILURES. Suppose we have a range between 1.4450 and 1.4500 on the EUR/USD that is clear on the 15- and 5- minute. We are looking for shorts at 1.4500 and longs at 1.4450. The closer we can enter to the top and bottom the better off we are. We may set a stop loss about 10 – 15 pips outside the range top or bottom. The approach is this: Look for a 5- or 15- minute candle to test the range top or bottom, possibly poking through, but closing inside the range. This is a failure. If we fail at the top, we short. If the pair fails to breakout at the bottom, we go long. What if the pair has big volume and closes the 5-minute period right on the support or resistance line? WAIT, the pair may very well breakout and run in the next candle. You can take a breakout trade here if you feel like it has room to run.
Step 1:
Check the Daily chart to see if there are any large scale signals that may be important to you even as a very active trader i.e. are we running into the 100-day moving average, a major trend line or the high/low from another key day? We don’t have to trade with the daily trend, but we must be aware of specific levels that may pose a threat or help us out.
Step 2:
Move down to lower time frames including the 180- and 60-minute charts. Determine if there is a strong underlying bullish or bearish trend, or if the pair is in a range. We want to work primarily within the trends that are shown here, but it’s not an absolute must. After all, if there’s a reversal we don’t want to fight it.
Here we will also identify key levels of support and resistance. The easiest way to do this is look for turning points where the pair recently peaked or bottomed out. These established S&R levels will likely play a role again. We can also use trend lines here. Fibonacci Retracement and Extensions can also be applied. Again, the goal here is to find important support and resistance levels, regardless of the method used.
Step 3:
Move to the 15-minute chart to see the trends, support and resistance levels you’ve identified in greater detail. Volume indicator should be added here. Take note of whether the 15-minute trend matches the trend(s) seen on the 180- and 60- minute charts. If the trends match there are very few circumstances where we want to fight it. Therefore, we are looking to trade primarily in the direction of this 15-minute chart’s trend – bullish, bearish, or sideways.
Step 4: (optional – Super Active)
Move down to a 5-minute chart. Keep the volume indicator on here as it will give you very good insight to whether there is more conviction behind the buying or selling (how big are the volume bars on green candles versus red ones??).
Bullish or Bearish Trends:
When the trend we are playing is clearly bullish or bearish we have 2 entry options.
1) Entering on a retracement. This is the preferred method. By waiting for a retracement we are looking to go long (buy) only from support levels and short (sell) only from resistance levels. This allows us to set much tighter stops and opens the door to bigger profit targets. Many times, we will watch a 5-minute candle as it tests the support or resistance, looking for confirmation that it will hold until the candle closes. Volume is key here. We want the retracement volume low, indicating that the conviction lies with the direction of the trend.
2) Sometimes we do not have the luxury of finding a retracement when the market is running in one direction for a while. In such circumstances we will play a breakout strategy. This means we wait for a 5- or 15-minute candle to break through a support or resistance level, close outside of it, and then we can take the trade. We are looking for big volume on the candle that breaks the support or resistance. In the next few minutes, if the pair reverses and pushes right back through the level that was just broken, on strong volume, we dump the trade and reevaluate.
In a range we are looking for FAILURES. Suppose we have a range between 1.4450 and 1.4500 on the EUR/USD that is clear on the 15- and 5- minute. We are looking for shorts at 1.4500 and longs at 1.4450. The closer we can enter to the top and bottom the better off we are. We may set a stop loss about 10 – 15 pips outside the range top or bottom. The approach is this: Look for a 5- or 15- minute candle to test the range top or bottom, possibly poking through, but closing inside the range. This is a failure. If we fail at the top, we short. If the pair fails to breakout at the bottom, we go long. What if the pair has big volume and closes the 5-minute period right on the support or resistance line? WAIT, the pair may very well breakout and run in the next candle. You can take a breakout trade here if you feel like it has room to run.
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