how to avoid being stop out in this profitable trend?

[GoldWTcal 1]

Good day, 

In Andrew's book, we understand that, when using a VWAP strategy, normally day traders should set the stop loss at somewhere very close to the VWAP ( at the opposite side of VWAP ).

But, look at the attached screenshot - AMD's 5 minute chart on Feb 03 2022.

Look at the very good, profitable trend in the early morning before 8:30 am ( circled area on the chart ).

what is the best entry point and timing when facing this trend? I think many people may want to enter at the 2nd or 3rd candlestick, to get a good stop loss ( close to VWAP ).

But, how to avoid get stopped out at the third candlestick (look at the very long wick penetrating the VWAP )?

thanks

 

[Angela Kuzeva 23]

In my opinion it is not possible to avoid being stopped out unless you have a very wide stop but this will not do you a favor as your R:R will not be good. And still not a guarantee because this is very early in the session and you don't have enough data information, it is still price discovery phase. Yes there is volume bar which may suggest a push up but on the second bar after the pullback everything can happen. it can fake break and go down as it opened lower. It can go to PMH and go down. You must look at longer term TF and trade with the long term TF trend. For me the trade would be after the triple top on the opposite direction if the daily and 60 min support the downtrend hypothesis. I would not try to catch a short term pullback on 1  or 5 min. 

There are few things I can suggest:

If catching this pullback is your strategy, you must define rules where to enter and where to put your SL and follow them. Track the results and adjust based on the data, let's say 100 trades. 

I would look at placing SL:

• below the wick of the previous candle, that's risky and you will be stopped out many times and works more for parabolic reversals than catching trends
• below the last swing low
• below the body of the previous candle 
• below a level once it confirms that it holds

In this particular scenario, I  personally will enter on the break of the HOD and put my SL either below the wick of the candle which breaks the high or few cents below the level.

If I get stopped out, I would re-enter once the price goes through my previous entry and keep the same SL level. I will try only two times. But I would do this only if I have a trade book for this trade at the open. 

[GoldWTcal 1]

9 hours ago, peterB said:

you can never avoid being stopped out

anything can happen

its probabilities we play

it takes just one trader anywhere in the world as you or me for you to get stopped out

its easy to speculate now on the past but when you enter the trade you never know what will happen next you just need to accept the fact that if you do this it will work in your favour making you money

Thank you, Peter. Noted.

[GoldWTcal 1]

7 hours ago, Angela Kuzeva said:

In my opinion it is not possible to avoid being stopped out unless you have a very wide stop but this will not do you a favor as your R:R will not be good. And still not a guarantee because this is very early in the session and you don't have enough data information, it is still price discovery phase. Yes there is volume bar which may suggest a push up but on the second bar after the pullback everything can happen. it can fake break and go down as it opened lower. It can go to PMH and go down. You must look at longer term TF and trade with the long term TF trend. For me the trade would be after the triple top on the opposite direction if the daily and 60 min support the downtrend hypothesis. I would not try to catch a short term pullback on 1  or 5 min. 

There are few things I can suggest:

If catching this pullback is your strategy, you must define rules where to enter and where to put your SL and follow them. Track the results and adjust based on the data, let's say 100 trades. 

I would look at placing SL:

• below the wick of the previous candle, that's risky and you will be stopped out many times and works more for parabolic reversals than catching trends
• below the last swing low
• below the body of the previous candle 
• below a level once it confirms that it holds

In this particular scenario, I  personally will enter on the break of the HOD and put my SL either below the wick of the candle which breaks the high or few cents below the level.

If I get stopped out, I would re-enter once the price goes through my previous entry and keep the same SL level. I will try only two times. But I would do this only if I have a trade book for this trade at the open. 

Thanks, Angela, for your helpful comments.

Edited May 8, 2022 by GoldWTcal

[GoldWTcal 1]

7 hours ago, Angela Kuzeva said:

In my opinion it is not possible to avoid being stopped out unless you have a very wide stop but this will not do you a favor as your R:R will not be good. And still not a guarantee because this is very early in the session and you don't have enough data information, it is still price discovery phase. Yes there is volume bar which may suggest a push up but on the second bar after the pullback everything can happen. it can fake break and go down as it opened lower. It can go to PMH and go down. You must look at longer term TF and trade with the long term TF trend. For me the trade would be after the triple top on the opposite direction if the daily and 60 min support the downtrend hypothesis. I would not try to catch a short term pullback on 1  or 5 min. 

There are few things I can suggest:

If catching this pullback is your strategy, you must define rules where to enter and where to put your SL and follow them. Track the results and adjust based on the data, let's say 100 trades. 

I would look at placing SL:

• below the wick of the previous candle, that's risky and you will be stopped out many times and works more for parabolic reversals than catching trends
• below the last swing low
• below the body of the previous candle 
• below a level once it confirms that it holds

In this particular scenario, I  personally will enter on the break of the HOD and put my SL either below the wick of the candle which breaks the high or few cents below the level.

If I get stopped out, I would re-enter once the price goes through my previous entry and keep the same SL level. I will try only two times. But I would do this only if I have a trade book for this trade at the open. 

Angela,  

I would like to attach a more detailed screenshot for your ( and perhaps other traders ) review and further comments.

It shows my entry point and stop loss ( if I was trading AMD that day ).

The strategy I would use in this 5 minute chart is ( if I was trading the stock that day ) - when I see the stock received confirmed support at the VWAP, I will enter at the following ( the next ) 5 minute candle stick just a bit after its opening, and place the stop loss just a few cents below the body of the previous candle, ( the candle that confirmed the support of VWAP ). This stop loss is also below and close to the VWAP, as often suggested in Andrew's book. 

However, in this chart, because the candle stick that I would enter the trade had so long downward wick that penetrated the VWAP deeply, I think if I was in the trade that day, I must have been stopped out.

Thanks

Edited May 8, 2022 by GoldWTcal

[Angela Kuzeva 23]

Wait for the candle to sell off first and after that breaks the high of the previous candle. You may enter at this point. I assume you are entering on the 3rd green candle after the red one.  If you play early in the session, the stops must be wider because of the volatility and the size of the candles. You may have the set up on 5 min but it is preferrable to enter from 1 min chart for better R:R. 

I still think the best entry is the break of the consolidation, which confirms the price action to the upside and entry on 1 min. The consolidation at PM above price action is concerning as it will act as a resistance if the stock is not strong enough to go through. But honestly I never traded VWAP strategies and I see it as break of HOD. 

I usually have stops on wicks or bodies of the previous candle depends on the time of the day, the strategy and size of the candles, I trade mainly breakouts and parabolic reversals. There is no guarantee that I will not be wicked out to the penny but if I am convinced in the set up, I re-enter. 

Also some stocks are more wicky than others and you need a wider stop for them. Last week volatility was high, so expect wild price action and wide bar candles and most stocks trending with SPY. So VWAP as a technical SL works but you also have to consider market environment, stock you trade, time of the day and size of the candles to adjust your stops. 

Edited May 8, 2022 by Angela Kuzeva

[GoldWTcal 1]

51 minutes ago, Angela Kuzeva said:

Wait for the candle to sell off first and after that breaks the high of the previous candle. You may enter at this point. I assume you are entering on the 3rd green candle after the red one.  If you play early in the session, the stops must be wider because of the volatility and the size of the candles. You may have the set up on 5 min but it is preferrable to enter from 1 min chart for better R:R. 

I still think the best entry is the break of the consolidation, which confirms the price action to the upside and entry on 1 min. The consolidation at PM above price action is concerning as it will act as a resistance if the stock is not strong enough to go through. But honestly I never traded VWAP strategies and I see it as break of HOD. 

I usually have stops on wicks or bodies of the previous candle depends on the time of the day, the strategy and size of the candles, I trade mainly breakouts and parabolic reversals. There is no guarantee that I will not be wicked out to the penny but if I am convinced in the set up, I re-enter. 

Also some stocks are more wicky than others and you need a wider stop for them. Last week volatility was high, so expect wild price action and wide bar candles and most stocks trending with SPY. So VWAP as a technical SL works but you also have to consider market environment, stock you trade, time of the day and size of the candles to adjust your stops. 

Thanks again, Angela. Very valuable comments. 

What is HOD?

I agree there are many factors that need to be considered to make trades. Day trading is not an easy job. 

[Angela Kuzeva 23]

HOD is High of the day

[Angela Kuzeva 23]

I agree, I am commenting on current chart entry and SL. and not on the quality of the set up.  It is mentioned as a VWAP strategy and I made it clearly I have never traded.

Edited May 9, 2022 by Angela Kuzeva