Chapter 5. A secret strategy for timing your entry

These are my notes for the tag, Strategy › Entry › Volume surge, from Volume Trading › Chapter 5. A secret strategy for timing your entry.

  • All successful traders follow a system
  • Have clear rules for entry and exit
  • Wait for the correct set-up
  • Cut your losses quickly

Rules for entry

  1. Today ( Day 1 ) must be a 52-week high
    • I disagree. It can be a 1-month, 3-month, or 6-month high
  2. The candle formed today should close at or near the top of the day’s range
    • I agree. I also think It must close above a fast 9-day moving average
  3. Today’s volume should be more than double the average daily volume of that stock over the past month
  4. If all the above conditions are met, we buy the stock on Day 2, one point above the Day 1 high

Additional rules for entry

  • Start with a small position
  • You will use the ATR bands to set your stop-loss ( SL ) and take-profit ( TP ) levels
    • For ultra-short-term trading ( 5 days or less ), make sure the ATR band inputs are set to the following settings
      • ATR period
        • 5
      • ATR band scale factor
        • 3
      • Leave all other inputs unchecked
  • Set a bracket buy order at .01 above today’s ( Day 1 ) high
    • You will place your stop-loss using today’s lower ATR band
    • You will place your take-profit using today’s upper ATR band
  • This is a hard-stop trade with a maximum of two attempts

  • Strength of the candle is important
    • The stronger the candle, the more the force
    • Ideally, you want a large breakout candle the closes at or near the top, forming a small upper wick compared to its body
      • Editor’s note. Online research suggests that the formula for calculating the strength of the candle is based on the percentage of the gap between the close and high in relation to the distance between the low and high points.
        • It is not clear whether the length of the body matters
    • You don’t want a breakout day candle with a long upper wick
      • Sellers came back in to push the price down after the breakout
    • Doji suggest indecision
    • Stocks breaking 52-week highs can reverse and fall
      • This is a result of a few traders buying small lots to push the price higher to see if stock sustains its momentum, then short if it does not
  • Why wait until the next day to enter?
    • You do not want to get caught in a strong intra-day reversal on breakout day
    • A close is not a close until it closes
    • Do not buy at the open
      • Wait 15-minutes to determine if the price will sustain above the previous high for the first 15 minutes
        • Editor’s note. This is similar to be the ORB strategy
    • A negative open should be dealt with caution
    • Wait for the stock to move back up and cross the previous day’s high
    • If not, then stay away from it
    • Most traders who miss the breakout will place an order at the open to
  • Keep your stop loss below the low of the breakout day candle (day 1)
  • By having exact rules for your buys and sells, you move into the top 5% of traders

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Volume Trading by Jayesh Shah

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Chapter 4. Volume and candlesticks: A deadly combination

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