An intraday trading strategy to give you a definite edge

A strategy that can be used alone or in conjunction with other strategies, this is one of my favorites. Because I like? Makes a trader move early, using a couple of confirmation tools. While no system is perfect, this strategy often provides very high rewards for risk and we often know fairly quickly if the market gave us the right signal.

I will call this strategy the truncated price swing.

A truncated movement I will describe simply as a movement that does not reach the previous movement. I especially like this near the outdoors. This is often when the highest profit potential is available, but can be used at any time of the trading day. Let’s say a $ 50 stock drops $ 0.50 from the open, stops, and then starts to come back to test the lows. But this current price change does not reach it. This can provide a low-risk opportunity to enter the market long (in this example), and the entry could be based on another signal, such as a doji, engulfing pattern, or trend line bounce.

Using profit targets and estimated daily ranges, a high reward can be set for risk trading. The downside is that we don’t know if (in this example) the stock will actually reverse, although based on the evidence, we are making an informed estimate that it will. We are buying on the truncation using a simple signal, but in a few minutes the market could go back down and break the lows (or highs if it goes short in a bullish move).

As I write this, this strategy could have been used on July 10, 2009 (check your intraday charts). You set a low, then you set a high, then a lower, but when you try to test the highs again, you fail. In this example, a small range was created below the old height (rectangle). A break below the small range signaled the truncation and a short could have been placed around the bottom of the rectangle. The market for much of the rest of the day.

Long story short, we’re on the lookout for any move that’s headed toward testing a daily high or low, but gets there. Once the price stops and begins to retreat from the daily high or low, we are waiting for a confirmation signal; This could be a candlestick pattern, bouncing off a trend line, or, as in the example above, a collection of bars and then a breakout of those bars away from the daily high or low.

Stops can be placed outside of the daily high or low or alternatively just above the truncated high or low which will probably not be too far from where we entered our position.

The profit targets for this trade vary according to the daily dynamics of the market.