Pay Day Cycle ( PDC ) Basics

These are my notes from the PDF, Swing trader level 1.

Topics

The PayDay Cycle Basics unit consists of the following topics.

• What is a PDC
• Timeframe to use for PDCs
• What impact PDCs
• Expansion cycles versus compression cycles
• Finding PDC opportunities
• Determine stock momentum with strategies
• The best time to enter a new position
• Lesson reinforcement actions

What is a PayDay Cycle (PDC)?

• Created by Micah Lamar
• Goal is to help traders identify trends in a stock chart
• Uses average candles (Heiken-Ashi candles) instead of basic candlesticks
• Creates a smooth visual in charts by eliminating gaps
• Without gaps, trends become more clear and easier to measure
• Two types of PDCs
  • Bullish
    • Series of bullish candles that shows an up-trend
  • Bearish
    • Series of bearish candles that shows a down-trend
• MACD is a momentum indicator
  • The momentum measures the speed the stock price rises or fall

The PayDay Cycle, or PDC for short, is a way to identify trends on a stock chart using average candles. Average candles removes gaps on trading charts. By eliminating gaps, trends are easier to find and measure.

The following gallery will help you identify the three chart types, bar, hollow candle, and average candle. Observe what all three charts have in common and what they do not have in common.

Types of PDCs

There are two types of PDCs. 

• Bearish PDCs
• Bullish PDCs

Bearish PDCs

• Multiple candles in a falling pattern suggests a down-trend

Bullish PDCs

• Multiple candles in a rising pattern suggests an up-trend

Using the following chart, we can identify multiple trends happening over a set amount of time. The average candles are showing both bearish (blue) and bullish (yellow) trends.

Using PDCs with MACD

MACD = Moving Average Convergence Divergence

• Plays a role in the PDCs
• Is a momentum indicator
• Is a technical indicator 
• Identifies the strength and weakness of the stock price during its’ momentum.

Time Frame To Use For a PayDay Cycle?

• The longer the trader’s timeframe, the longer the timeframe of the candles
• Most PDCs last an average of 6 to 8 days
• Best to use a daily chart
• Always look at the previous 3 to 9 months to get a better idea of the PDCs

What Impacts PayDay Cycles?

• Earning announcements can shorten or extend a PDC
  • Only event that is date-certain
  • All other events is uncertain
• Due to an increase in explosion around earnings, it is better to avoid holding a position close to the date of the earning announcement
• Certain news
  • Product announcements
    • Market will re-price the stock based on expected change in revenue and earnings
  • Management changes
    • Market does not like change
    • If CEO or CFO resigns or terminates, market will react
      • Market usually reacts negatively
  • Lawsuits
    • Any lawsuit that is filed creates uncertainity
    • Market will assume worst-case scenario
    • Market will discount the stock price accordingly
    • When outcome is known, stock will recover
      • Worst-case scenario is off the table
  • Competitor news
    • If competitor announces new product or service, it can impact stock’s price

Expansion Cycles vs. Compression Cycles

Expansion cycles

The best pay-day cycle for trading happens during expansion cycles.

Expansion cycles are self-evident by the stock’s momentum.

On the daily chart, the stock will make a new higher high each day

• Expansion cycle
  • Best PDCs for trading is expansion cycle
• Evident by momentum of stock
• Stock will make higher high every day
• When it makes a lower high, it might be at or near the end of current cycle
• Usually occurs when MACD is bullish
• As more shares are acquired, larger average candles will appear
• Traders can experience large gains
• Especially trading options
• Options provide leverage
• Profits are larger
• Risk are reduced to amount trader pays for contract
• To learn more about options, take WallStreet.io’s Beginner options course

Compression cycle

• Occurs when stock price is choppy in a tight range
• The market is trying to determine the value of this stock
• It could be consolidating gains before moving higher
• It could be getting ready to break down
• It is best to stay out of this range
• Wait for the next move to start
• Candle will close above or below the range of the compression cycle

Finding PayDay Cycle Opportunities

• WallStreet.io backtesting tool can help you set up strategies to find stocks from a pre-defined watchlist or all stocks starting with a new PDC
• You will gain stats to determine if they are a good PDC or not
• You can determine how effective the strategies are
• Choose the ones you think will work the best for you
• Rate the stocks and strategies

Determine Stock Momentum With Strategies

• Learn how to create a strategy with the average candle and MACD tools
  • Use the statistics of the strategy to rate and evaluate the strategy
• Start with a watchlist
  • Click on the name of the watch list being displayed
  • A drop-down menu will open with a list of watchlists
• Browse the “Community Watchlists”
  • Start with “Most popular” watchlist
  • A pre-defined list of the most commonly requested stocks within the WS.io community
  • To create your own watchlist, clikc on the plus symbol
• Open the Smart Studies tool
  • At the bottom of the screen, click on Smart Studies
  • Backtesting tool used to build strategies for findning good setups to trade
  • Focus on PDCs and MACD
  • Swing trading level 2 will focus on more complex strategies
  • Click on the wheel on the right and choose old view from the drop down menu
  • Cick on the average candle on the left side of the backtest panel and drop it into the buy section
  • Notice the average candle now appears above the chart
• As more conditions are added to the strategy, they too will appear there
• The default setting of buying on the first green candle and selling on the first red candle will automatically populate the fields
• These can be changed later to see how the stats are affected
• Click on any of the symbols from the watchlist
• The average candle strategy will automatically be applied to each one
• Click to run backtest
• You will experience a new view of the strategy in smart studes and state the results
• Look at the statistics for the selected stock and strategy
• Click

The Best Time To Enter a New Position

• The sooner you enter a position, the better your chances are of capturing gains
• If you are using the PDC strategy,
• Count the number of days with the most recent bullish cycles
• If the bull cycle lasted 8 days, you have a good chance in the first three days
• If the bull cycle is in day 5 or 6, then it may be too late
• Better to wait for the bear and prepare for the next bull cycle

Lesson Reinforcement Actions

• Add the MACD, 50 DMA (day moving average), 200 (day moving average) to your indicator set in the backtest program
• Identify your favorite three stocks to trade
• Study the PDC for those three stocks
• Determine the average number of days for a bullish PDC
• Identify the expansion and compression cycles of each stock for the past year
• Determine if they are good PDCs