Guide to Day Trading Strategies

R O S S C A M E R O N
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higher price than (1). This is important because the price could have continued lower than the 
pivot of price (1), and continued a short term retracement. During this time we can see on the 
À
ve minute chart that the price was touching the 9 EMA. The pivot at price (2), is the place we 
need to see break in order to enter this position. A break of price (2), on the one minute chart 
will indicate the trend is being restored as the price is making a higher high. What makes this 
pattern on the one minute especially strong is the fact that the break of price (2), will also be 
the 
À
rst 
À
ve minute candle to make a new high. I always watch both the one minute and the 
À
ve 
minute charts, and look for them to give me entry signals around the same price. That price will 
be the apex point where a pattern either breaks out or breaks down.
Chart of Parabolic Mover. Note the retracement to the moving 
average at 3pm. This retracement would be the pro
À
 t target for 
short sellers who shorted the stock during the squeeze.

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H O W T O D A Y T R A D E
83
Chart of a Parabolic Mover. In this example the 9 EMA 
did not appear to provide support.
Parabolic Moves
As day traders, we love when stocks make parabolic moves. A parabolic move is when a stock 
basically goes straight up or straight down. This pattern is almost always the result of a strong 
catalyst and a strong daily chart. Parabolic movers are stocks that will be irrationally strong or 
weak. We have seen stocks lose half their value in one day while others surge up over 1000%. 
These types of extreme moves are not uncommon in the markets today.
There are a few ways to trade parabolic movers. If I want to participate in the momentum, I will 
enter parabolic stocks on a momentary pullback in the form of a bull 
Á
ag or a 
Á
at top breakout. 
Typically these patterns will be on the one minute chart since the stock is moving very quickly. If 
I can get an entry, I will ride the momentum as long as possible, but I will make sure I sell half of 
my position quickly and adjust my stop to breakeven. It is not uncommon to quickly be up and 
then have the price drop right back to breakeven or to a loss. Buying a parabolic mover almost 
always means chasing, and chasing can be risky. We have to mitigate the risk involved with 
trading these types of stocks by using smaller positions, until we have built up a pro
À
t cushion 
on the name and can afford to take a larger risk.
The second way to trade parabolic stocks is to wait for the reversal. We cannot always time 
the entry or predict when a stock is going to run 100%, but we know almost all big moves will 
get reversed at some point. The challenge is that some stocks will look like they are about to 
reverse when they are up 100%, but end up running to 200% instead. Trying to guess the top or 
bottom of a parabolic move can be just as risky as chasing the momentum. As we have already 
said, day trading is risky, but we can mitigate risk by avoiding the most dangerous setups. 
Parabolic movers are the highest risk setups we will discuss. They provide high risk, but high 
reward opportunities. I generally reduce my share size when trading these types of stocks as 
a risk management technique. If I am going to try to take a reversal trade, I will always begin 
with a quarter of my planned position size. This allows the stock to continue to squeeze up 
without stopping me out. We may have the right idea, but the wrong timing. The advantage 
of scaling in is that we do not have to pick the exact reversal point. We can add a quarter size, 
add another quarter, and then add full size once the reversal con
À
rms. Another advantage 
to scaling in is that once a reversal has been con
À
rmed, we will often be really far away from 
the stop because of the range of parabolic stocks. Whether you trade parabolic stocks with 
momentum setups, reversal setups or both, remember that when stocks start to surge up, it 
is easy to think about all the pro
À
t potential and forget about risk management. I always try 
to stay focused on my risk levels and use smaller positions to reduce the emotions and greed 
that are involved with big movers.

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