ABCD/Flag Strategy

[Robert H 453]

I shared my thoughts on the classic ABCD/Flag strategy. This pattern presents itself in virtually every move, across multiple timeframes. The formation consists of:

1. Run-up/sell-off

2. Profit taking/consolidation

3. Continuation

Let me know your thoughts!

[mahamuni 5]

Just mind blowing.  I am learning so much from you guys.  

Thank you for teaching us this valuable information.

Thanks

Munish

[MWarrior 0]

A little late on this but...

Love it! I'm studying ABCD's too. I'm a novice day trader, but they resonate with me as well.

The pattern is elegant and your insight on its causes makes a lot of sense: different market participants in different time frames looking for similar patterns. At risk of sounding overly philosophical, the notion of a wave that expresses itself on multiple levels agrees with experience in the natural world. In fact, I believe it is an analogy commonly used to describe the Dow theory of stock prices.

Thanks for sharing and apologies for the ramble...

[James H. 14]

I've studied ABCD's extensively, analyzed charts and watched hours of live recordings of my trades. What I've discovered  are three low risk entries and three high probable exits. Before trying this strategy, it is recommended that your psychology is resilient enough to add-on to a negative position. The goal of this strategy is to anticipate a developing ABCD's pattern, which happens to occur very often in the market. So that you can scale into a position that reduces risk and maximum profits at the same. Mastering this strategy will make you look like a day trading Genius!

Entries:

1. Opening range breakout: Enter your first entry on a 2 or 5 minutes ORB.

2. Flag: Add to your position after a break of a flag.

3. Pullback/Retracement: This entry requires a little bit of faith and a strong boost of mental psychology to pull off because adding on the pullback is essentially adding to a negative position, so take precaution. I use these three strategies to find the bottom of a pullback which all appear to work: fibonacci retracement, reversal/engulfing pattern, and support/resistance/L2. The safer and lowest risk entry is adding on the reversal/engulfing pattern.

Exits

1. Whole number: Always obey whole numbers.

2. Towards newer highs: The majority of new highs fail so why not profit into them because the stock liquidity is at its peak.

3. Counter pattern: Never hold a position if a stock is developing a strong pattern in the opposite direction. There are exception to this rule such as the stock price not violating the pullback criteria. If the stock flips from red to green, it's highly recommended that you take the lost to reduce any further damage.

The goal of this strategy is to scale into your position using the three entry criteria described above. Scaling into your position reduces your risk because if the first entry fails to show continuation, your lost is only limited to that smaller position size. Upon each add, you are essentially adding to your position with confirmation of the price continuing in your direction. With the only exception of the third entry criteria which requires good psychology, practice and experience to master. The exits criteria are based on high probability locations where possible opportunities can occur to exit the trade. 

Study 1) AMD: First entry 2 ORB, Second entry Bull Flag. First profit take at whole number, Exit into newer highs. 5/29

Study 2)  AMD (Failed ORB): Long 2 min ORB failure. Reversed Short 2 min ORB, Added on pullback, Added on flag. Exited into newer lows. 5/23

Study 3)  AMD (Trading very fancy!): Added on pullback using multiple timeframes, Added on first flag failure, Added on second flag failure, Added on third flag from another timeframe. Exited into newer highs. 5/22

Study 4) AMD (Trading ABCD's with my eyes close, not recommended): 5/17 

Picture 1: 2 minutes ORB using stop limit orders and price=HIGH hot key. Entered limit orders using fib retracement and support/resistance to guess the pullback before walking away.

Picture 2: Violated profit taking opportunity 3 because I wasn't around to see it. Instead I entered limit orders to my profit targets before walking away again. It appears I also added near the whole number as a little revenge trade.

Picture 3: Missed an add opportunity on a flag. Took profit half way up into new highs failure, and missing the profit opportunity on the way down on exit criteria 3 because I wasn't in the room. Returned a little after 10am to exit near the whole number.

Picture 4: Final. Long channel trade between support and resistance. (Which is another strategy I use but I won't go into details in this discussion)

From my experience, ABCD patterns have an extremely high probability of occurring in any stock. For example, AMD had ABCD patterns formed almost every single day last week.

 

Conclusion:

Please note, I don't recommend trading any stock with your eye close. Use precaution and common sense because day trading is extremely dangerous so manage your risk wisely. In fact, I trade AMD almost everyday, so I am very comfortable trading this stock. As a disclosure, I trade with my own money, and this strategy is not for everyone so your results will vary. This strategy was created after watching hours and hours of my live trading video journals and combining with other strategies.

This strategy will not make you a Genius at day trading but it will increase your odds of becoming profitable and a consistently profitable trader. 

Edited May 29, 2019 by James H.