Reversal Strategy

[Restretch 9]

Reason for using this strategy is to trade long because my current Rollover IRA cannot have leverage. Otherwise not shorting allowed.

 

Indicators:

1. RSI (9)

2. MACD (20,9,5)

Histogram in black

3. Volume with average volume clicked

 

Levels

1. daily

2. 30 minute

3. VWAP

 

Stocks

1. mid cap (30.00-60.00)

 

When

1. open

2. before 11am

 

Entry

-MACD histogram between .02 & .06

-RSI at or below 20

-after a substantial selloff to a major level

 

OK - here is what I have been doing. I am only trading mid cap like Micron or something that may have gapped up with a history of reversals. typically I will find my levels first from daily and 30 minute charts. 5 minutes after the open my first trigger is a big selloff which in turn sends my attention right to the RSI looking for that bottom of 20-25, 20 being much better. As 20 on the RSI approaches I quickly look at the bid/ask spread to see if its terrible or not then focus on the MACD histogram. What I am attempting to ascertain is share size of all things. If the spread is decent and the MACD Histogram is down at .06 my share size is larger than if the Histo is at .02. If the RSI is at say 15 while spread is reasonable, MACD Histo is at .06, and at a major level I go very large - this is your best entry by far. However, most of my entries are Histo .03, RSI 25, and close to a major level. When entering on this average setup share size is not typically large (under 1000 shares) and I wait for the histogram to confirm the move by seeing a decrease of the next bar. One word of advice is that after the entry you should see a move to the positive within 10-15 seconds. If for some reason action is not going in your favor keep a very close watch on the price with your finger on the sell button. It's ok to get out and wait to see if the stock goes lower. My experience is that 50% of the time it will go slightly lower if not going up right away but a continued sell off is minimal. However being paranoid from getting my butt kicked just makes me fell better to exit and wait a little bit. If I exit the trade because of a drop I usually get right back in after the level is established. so far I have a 60% win ratio on just the entry and have only lost money on three trades out of four days positive trading 6-7 times total for the session (in and out is 1 trade taking profit does not count). obviously 4 days is not enough time to see if this is legit but after 26 more days I should have enough time working with this strategy to determine if I can use it live.

 

NOW- here is the hard part. the exit is kicking my butt as I keep leaving trades way to early - average move being 10c-15c-. For instance today $1.00 was left on the table from MU and SQ - not good. I was using weakness in the MACD Histogram to be the exit trigger but honestly that has cost me a whole lot of green. I am starting to think that traditional Andrew stuff is a better way to asses an exit (abcd, volume, vwap, etc).

 

I would love any advice or help with this. Feel free to say anything or ask any question. Although I may have come up with a start to a reversal setup there are certainly others way smarter than me or others that may already use this strategy that have knowledge to offer.

 

In closing - DO NOT VIOLATE YOUR DISCIPLINE - Every time I enter early money seems to leave me. It's ok to pass on moves even if they turn out to be awesome because a good entry will reveal it self shortly.

 

Ken Lewis aka FOMO

 

[Lee W 82]

Thank you for posting, Ken! I’m going to take a closer look at these indicators because reversals interest me.

[Restretch 9]

Just and update to my reversal strategy. After having some good success with the above strategy I have changed a few things up. first I am no longer using MACD as its one to many indicators rather just using volume and rsi and levels.

 

premarket I am looking for gapp ups, channels trading, or extreme sell offs from the daily chart. After that levels are marked off the daily chart and fined tuned from a 60 minute chart. during pre market I mark the low and highs then wait for the five minutes before market opens to see exactly what going on. After market opens I tend to look for sell offs using a 30 minute, 5 minute, and 1 minute chart. My goal is to enter at levels just after a large volume spike and alignment of RSI drop from all three charts. If the level does not hold I am exiting and waiting for another entry at another level. So Far so good.

 

Exit is now simply following traditional trading plans outlined by Andrew. Good Luck All.