These are the key things I look for when day trading price action. You don’t need to know everything about technical analysis to trade well. These few key concepts will enhance your trading.
The slides are copied below so you can cut and paste the ones you want to be reminded of. Keep them by your desk and refer to them while you trade.
These concepts are from the Price Action Stock Day Trading Course.
Price Action Day Trading Cheat Sheet
- Measure wave size. This helps establish reasonable profit targets. Assume next waves will be smaller. (On whatever time frame you use)
- Stop loss size should be half of the upcoming estimated wave size (R:R).
- Not about prediction. About maximizing the chance of hitting the target based on what the market’s currently doing.
- Can go for bigger targets, but this will often mean holding through pullbacks (totally fine, just be aware). Can still use wave size to estimate how far price will move over next pullback.
- Strong thrust coming into TC. Strong thrust coming into RT/RB.
- With a TC the strong thrust immediately precedes the pullback and entry.
- With an RB/RT, smaller waves over form the pattern, so you need a big thrust coming into the pattern.
- What comes into a pattern often comes out.
- Are the candle whipsawing? That will make it harder to trade. Avoid.
- Are triggers working, recently, prior to a possible entry? If not, avoid.
- Is there conviction in the price movement? If not, avoid. “Drift” is a killer”
- Drift is when the price is stuck inside prior price waves, and can’t gain traction outside. Candles stack beside each other (even when moving up or down), instead of moving in long stacked-ontop-of-each-other candles. Turns are ragged and unclear.
- Our patterns set the stage, but the context needs to be right to trade.
- Movement relative to SL (trigger candle) provides the R:R. Not good, don’t trade.
- Tough entry, don’t trade.
- No conviction, don’t trade.
- You are playing YOUR OWN game, not the markets.
- You get to decide when you trade and when you don’t.
- The market will try to lure you in. Don’t let it! That is the game. The battle is with yourself, not the market.
- Everything must align. A strategy/signal means all of it, not just a pattern.
- 1 or 3 trades where everything aligns is way better than 5-10 mediocre trades. That’s 2-4R per day. R is simply a unit of risk. So if we risk 1% per trade, then 4R means we added 4% on our account.
- Our job is to recognize our context, pattern, and trigger (R:R minimum) in this sea of data. That is it. Doesn’t matter what happens outside that. Integrate that belief for no FOMO.
How to become a person without FOMO: see Tactics for Improving Self-Discipline because it will be impossible to trade well with FOMO.
For further reading on Price Action, see Become a Master at Price Action Trading.
Cory Mitchell, CMT