Guide to Day Trading Strategies

H O W T O D A Y T R A D E
73
I prefer the one minute and the 
À
ve minute charts. We typically look for bull 
Á
ags on stocks 
that are already on our watch list, because we know they will trade with heavy volume due to 
a catalyst. I often 
À
nd bull 
Á
ags by watching the high of day momentum scanners. Stocks that 
are surging up with high relative volume, can form bull 
Á
ags worth trading when they begin to 
pullback. This puts me into the group of traders who missed the 
À
rst move, but will buy up the 
À
rst and second pullbacks. The best bull 
Á
ags will pullback less than 25% of the move. Unlike a 
Á
at top breakout where we buy near the high of the consolidation, during a bull 
Á
ag, we purchase 
when the 
À
rst candle makes a new high. The 
À
rst candle to make a new high, versus the high of 
a previous candle is considered a possible turning point where momentum shifts back into the 
hands of the bulls. When I enter on the 
À
rst candle to make a new high, I set my stop loss at the 
low of the pullback, and have my 
À
rst pro
À
t target at the high of day price.
It is important that we do not enter bull 
Á
ags at the high of day. Some new traders will mistake 
a bull 
Á
ag for a 
Á
at top breakout and will wait to buy until the high of day price is hit. When a 
stock makes a quick move up, a pullback, and then a second move up, a double top is usually 
formed. Double tops will always be strong resistance points. Note that a 
Á
at top consists of three 
or more taps at the resistance price. If a stock is extremely strong it can break through the double 
top resistance and continue to run, but it is important to recognize the difference between a 
Á
at 
top breakout and a double top after a bull 
Á
ag. Buying double tops usually means purchasing 
a stock at the high of day, and then having to sell for a loss. Sometimes a double top will turn 
into a 
Á
at top breakout pattern if it is given enough time to consolidate.
An important characteristic to watch for on the bull 
Á
ag is strong volume during the 
À
rst initial 
move up, low volume during the pullback, and then high volume as the stock moves back up 
and through the highs. If you see high volume on the pullback, it may be an indicator that the 
stock is actually going to reverse, instead of setting up for a second move higher. The high 
level of volume on the pullback suggests short sellers may be coming into the trade to push 
it down.

---