90% Win Rate?

by | Apr 3, 2020 | Editorial | 0 comments

These have been some of the most difficult markets to trade-in.  

The intraday volatility has been whipsawing traders out of their positions – causing them to overtrade and lose money. 

Overtrading is one of the most painful mistakes you can make as a trader. 

My trade of the day lasers in one trade in the SPY. 

I put together a game plan, detailing everything I need to be successful (levels of support/resistance, entry and exit targets, which contract and strike I want to trade, etc.) 

Part of my success over the last month has been my discipline. 

For example, yesterday I missed the entry on my trade of the day. A lesser trader would have paid up, or gotten into something else. But that’s not how the pros maintain their edge. 

And that’s not how I want you trading. 

I’ve nailed over 90% of my trades over the last month. 

 

 

Want to know exactly how I’m doing it?

I’ll use premarket momentum indicators with technical analysis to find the setup.

But that’s not all…

 

Daily Deposits

 

The core of Daily Deposits is based on determining the strength of the markets using premarket momentum analysis.

These premarket indicators are then combined with support and resistance levels, the RSI indicator, and other indicators that produce some of the most accurate trading signals out there!

In fact, even though I may have missed a huge opportunity the other day, the system pinpointed a perfect trade to short the markets.  

Let’s take a look at how I got my trade selected to capture huge profits.

 

Premarket Analysis 

 

The first step I take in selecting trades in the premarket sessions is to look for clues to what the market may do once the bell rings.

Daily Deposits is based around a key set of momentum indicators that were hand-selected to identify market direction prior to the market open.  And recently, these have been put to the test in one of the hardest markets to trade in history!

The pre-market is broken into:

  1. The global overnight outlook
  2. Sector review to identify strength in the US Markets
  3. Premarket momentum and technical analysis review on the SPY

But those are only 3 of 6 key premarket indicators used to get a better understanding of what is about to happen in the trading day ahead.  

 

Global Outlook

 

First I start by reviewing the global outlook to determine the trend coming into the US market open.

The importance of reviewing global markets is that there is a high chance the trends that are going on around the world will bleed over into the US markets.

 

 

Prior to the opening bell on Apr 1st, the global markets were down overnight – signaling weakness that should carry over to the US markets throughout the trading day.  

And after reviewing the global markets, the next focus is analyzing what is driving weakness throughout the US markets. 

 

Premarket Momentum Indicators

 

When analyzing the premarket session there are two primary things you want to reference when determining the trend of the markets.

The two premarket trend signals are:

  1. The overall trend is positive or negative
  2. The moving averages support the direction of the trend

For example…

 

Source: Thinkorswim

 

These two are similar to each other but are important to review in the premarket session.  

In a stronger market, it is common to see a downward overall trend, with a short term upward trend and bullish moving averages.  

When this occurs it’s said to have a mixed market outlook, and then you need to be even more careful of your trade placement in order to maximize the chance of success in the trade.

 

Premarket Support and Resistance

 

One overlooked aspect of trading is locating areas of support and resistance.  

The reason a trader would want to find these levels is that it provides excellent levels to place trades when expecting the markets to reverse direction.  

Let’s take a look at how premarket resistance levels are pivotal trading levels for the trading day coming up.

 

Source: Thinkorswim

 

These zones are based on prior pivot levels and are essential to finding reversal zones in the future. 

Remember… reversals may be zones and not lines in the sand…  so it’s best to give the trade room and not to keep stops too tight.  This will prevent getting out of a trade too early.  

Here is an example of two places you can place your trades when looking to enter a short position in the markets.

 

Source: Thinkorswim

 

In the chart above, you can see that each sell zone lined up directly with prior support or resistance levels.  

Let’s now take a look at how to combine other price action indicators to confirm the entry signal on the short trades.

 

Relative Strength Index – RSI

 

The next indicator that is added to the system is an RSI Oscillator and shows areas of overbought and oversold in the stock.

When combined with other indicators, you can combine buy or sell signals to give you higher confidence in the trade you are about to place.

But first, there are 4 key signals from the RSI:

  • Value over 90 – overbought
  • Values under – oversold
  • Values increasing – increased buyers
  • Values decreasing – increased sellers

Each of the four key signals that can be extremely important when determining the trend or reversal of a stock.

In this example, let’s take a look at what happens to the SPY’s when the RSI has overbought values.

 

Source: Thinkorswim

 

In this example, you can see the RSI traded over 90 into the overbought zone twice.

And once stock is considered overbought by the RSI, there is a good chance that there would be a market reversal to follow.

Now let’s take a look at how to combine indicators and generate powerful signals.

 

Combining Indicators

 

As you can see the RSI by itself can be a strong indicator to add to any price action analysis for identifying trades.

But when you combine additional indicators with the RSI, it actually generates even stronger signals for the trader to look for.

And this is exactly what happened right after the bell on the SPY to start the week.

The 2 signal:

  • RSI signaled overbought on the SPY
  • SPY traded into key resistance levels 

Let’s take a look at the SPY chart when combining these two signals.

 

Source: Thinkorswim

 

Here’s what I saw on the SPY’s:

The signal:

  • RSI went above 90, signaling overbought stock
  • SPY traded into overnight resistance 

Now let’s take a look at how this impacts the Trade of the Day.

 

Trade of the Day

 

Once I analyze the premarket momentum I determine what direction I want to trade the markets and layout what my stops are going to be in advance.  

Here’s what members of Daily Deposits had alerted in the premarket trading session.

 

 

Even though there was a slight reversal in the morning, the SPY traded directly into the resistance levels and had overbought RSI readings.  

And when you combine premarket momentum indicators with strong technical analysis tools, you can see how the stock price reacts.

So if you were able to time the markets and enter the trades at those levels, let’s take a look at the profit potential you may have had with this trading strategy.

 

Source: Thinkorswim

 

And if you would have timed that trade perfectly you could have landed a 100% ROI on your trade!

 

Wrapping up

 

Remember, a single indicator alone cannot predict the markets!

Once you combine multiple indicators and trade signals…you can generate strong trade setups.

And if you were able to quickly identify the RSI pattern you could have made huge profits trading the markets short!

So here are 5 important 

  • The RSI is a key reversal indicator
  • Readings above 90 are considered bullish, and overbought and provide strong short signals
  • Readings below 10 are considered bearish, or oversold and provide strong buy signals
  • The default period of the RSI is 14-period, but I use a 2-period

 

Want to learn more? Join me for my upcoming masterclass.

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