Day trading strategies: the complete guide with all the advanced tactics for stock and options trading strategies. Find here the tools you will need to invest in the forex market
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ABCD Pattern The ABCD Pattern is the simplest pattern you can trade, and this is an ideal choice for amateur day traders. Even though this is pretty much basic and has been used by day traders for a long time, it still works quite effectively because many day traders are still using it. This pattern has a self-fulfilling prophecy effect, so you just follow the trend. The chart above shows an example of an ABCD pattern in the stock market. This one begins with a strong upwards move. Buyers are quickly buying stocks as represented by point A, and making new highs in point B. In this trend, you may choose to enter the trade, but you must not be overly obsessed with the trade, because at point B, it can be quite extended and at its highest price. Moreover, you can’t ascertain the stop for this pattern. Take note that you should never enter a trade without identifying your stop. At point B, traders who purchased the stock earlier begin gradually selling it for profit and the prices will also come down. Still, you must not enter the trade because you are not certain where the bottom of this trend will be. But if you see that the price doesn’t come down from a specific level such as point C, it means that the stock has discovered possible support. Thus, you can plan your trade and set up the, stops and a point to take the profits. For example, OPTT (Ocean Power Technologies Inc) announced in 2016 that they closed a new $50 million deal. This one is a good example of a fundamental catalyst. OPTT stocks surged from $7.70 (Point A) to $9.40 (B) at around 9 am. Day traders who were not aware of the news waited for point B and then an indication that the stock will not go lower than a specific price (C). If you saw that C holds support and buyers are fighting back to allow the stock price to go any lower than the price at C, you will know that the price will be higher. Buyers jumped on massively. Remember, the ABCD Pattern is a basic day trading strategy, and many retail traders are looking for it. Near point D, the volume immediately spiked, which means that the traders are now in the trade. When the stock made a new low, it was a clear exit signal. Here are the specific steps you can follow to use the ABCD strategy: 1. Whenever you see that a stock is surging up from point A and about to reach a new high for the day (point B), then wait to see if the price makes support higher than A. You can mark this as point C, but don’t jump right into it. 2. Monitor the stock during its consolidation phase, then choose your share size and plan your stop and exit. 3. If you see that the price is holding support at point C, then you can participate in the trade closer to the price point C to anticipate the move to point D or even higher. 4. Your stop could be at C. When the price goes lower than C, you can sell. Thus, it is crucial to buy the stock closer to C to reduce the loss. (Some day traders have a higher tolerance, so they wait a bit more near D to ensure that the ABCD pattern is complete. However, this is risky as it can reduce your profit). 5. When the price moves higher, you can sell half of your shares near point D, and bring your stop higher to your breakeven point. 6. Sell the rest of your shares as soon as you hit your target or you feel that the price is losing momentum, or that the sellers are getting control of the price action. |
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