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Gap down bounce day - Wedge - Trend PB - DFS - 20-1-23.pptx

Very strong ticker, gapped down a lot when it beat earnings right of an important HTF support level. Traded the wedge pattern, but there were also trend PB's to trade.

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Gap down bounce
day
Catalyst: Earnings beat
Setup: Gap down bounce day
Trades: Wedge & Trend PB
Ticker: DFS
Date: 20-1-23
Bigger picture: XLF and VIX
XLF:
Just like SPY and Q’s, XLF has
broken down the 50SMA. But
it outperformed a little
intraday because it managed
to close green. Like most ETF’s
it was a small range day.
VIX level : 20
VIX has reclaimed the 20
threshold. It’s a market where
traders should/can focus
more on market plays.
Gap down
bounce day–
Setup
Strategy
Setup idea
There’s a catalyst, usually negative, that has caused a large gap down. The thesis is that the market
has overreacted, and the stock has sold of too much. The stock will bounce and have an intraday
trend. It can become a trend day, but I think this is less likely. It can also turn into a failed gap down
bounce day and have a bearish trend.
Setup variables
-Large gap% and ATR: <gap>% / -<ATR>ATR
-Preferably a HTF support level: <price>
- Strong intraday price action that confirms thesis.
Playbook examples: LULU, ILMN and DFS.
Playbook trades:
-Opening range breakout.
-Wedge pattern.
-Trend PB
Anti playbook trades:
VWAP Pull In.
Gap down (bounce) day is not a setup that goes along with the VWAP pull in trade. I am going long
on a stock that is down. When I trade that, I want there to be strength and an intraday trend. If we
have strength and pull back into VWAP, then almost always we have broken the intraday trend.
Getting in at VWAP and anticipating a new trend instead of joining it, doesn’t have high odds and
these setups with a gap down and negative catalyst.
Gameplan/ 5 step’s/checklists
1) Premarket game plan.
2) Prioritize and deep dive
Identified this correctly as a gap down bounce day setup, compared it with
LULU and ILMN. This is a strong setup because the catalyst was positive AND
there was an important HTF level. I had high conviction in this setup. I should
do a better job grading the potential of the setup. Would be the first cue for
a potential big move. Next time I’ll compare it with current playbook setups.
3) Analyze intraday price action.
Room to trend on the intraday was questionable, I thought. The opening
range breakout already made a 2ATR move which made me a little hesitant.
But the biggest movers are those who have already made big moves! We
don’t have an open of 0.8ATR and then trend towards 2.8ATR. I want to work
on a system to grade the setups next time.
4) Structuring the trade.
Didn’t do a proper job here. Wasn’t completely sure why this was a
trade2hold. The setup, elevated volume and intraday price action were
strong.
5) Rate the trade pattern.
I went through the variables in my head which is enough for the wedge
pattern. It’s an easy pattern to spot.
Potential to go higher/lower DFS
Holding above/below key level? Yes
Strong/weak market (bigger picture)? Medium
Strong/ weak market intraday? Yes
Strong/weak fundamental catalyst? Yes
Strong/weak setup? Yes
Elevated RVOL? Yes
Room to trend on daily? Yes
Room to trend intraday? Yes
Catalyst &
Fundamentals
Catalyst: Earnings beat.
Setup: Gap down bounce day
Premarket pre buzz: >5%
Float: 273 million.
Institutional Ownership: 85%
Short %: 1,73%
ATR: 2,73 ATR.
Average Daily volume (50 day): 2 million.
Daily volume: 8,7 million.
Gap%/Gap ATR: -5,8% / -2ATR
RVOL: >5
HTF support level: 94,50, 9/10 significance

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Gap down bounce day - Wedge - Trend PB - DFS - 20-1-23.pptx

  • 1. Gap down bounce day Catalyst: Earnings beat Setup: Gap down bounce day Trades: Wedge & Trend PB Ticker: DFS Date: 20-1-23
  • 2. Bigger picture: XLF and VIX XLF: Just like SPY and Q’s, XLF has broken down the 50SMA. But it outperformed a little intraday because it managed to close green. Like most ETF’s it was a small range day. VIX level : 20 VIX has reclaimed the 20 threshold. It’s a market where traders should/can focus more on market plays.
  • 3. Gap down bounce day– Setup Strategy Setup idea There’s a catalyst, usually negative, that has caused a large gap down. The thesis is that the market has overreacted, and the stock has sold of too much. The stock will bounce and have an intraday trend. It can become a trend day, but I think this is less likely. It can also turn into a failed gap down bounce day and have a bearish trend. Setup variables -Large gap% and ATR: <gap>% / -<ATR>ATR -Preferably a HTF support level: <price> - Strong intraday price action that confirms thesis. Playbook examples: LULU, ILMN and DFS. Playbook trades: -Opening range breakout. -Wedge pattern. -Trend PB Anti playbook trades: VWAP Pull In. Gap down (bounce) day is not a setup that goes along with the VWAP pull in trade. I am going long on a stock that is down. When I trade that, I want there to be strength and an intraday trend. If we have strength and pull back into VWAP, then almost always we have broken the intraday trend. Getting in at VWAP and anticipating a new trend instead of joining it, doesn’t have high odds and these setups with a gap down and negative catalyst.
  • 4. Gameplan/ 5 step’s/checklists 1) Premarket game plan. 2) Prioritize and deep dive Identified this correctly as a gap down bounce day setup, compared it with LULU and ILMN. This is a strong setup because the catalyst was positive AND there was an important HTF level. I had high conviction in this setup. I should do a better job grading the potential of the setup. Would be the first cue for a potential big move. Next time I’ll compare it with current playbook setups. 3) Analyze intraday price action. Room to trend on the intraday was questionable, I thought. The opening range breakout already made a 2ATR move which made me a little hesitant. But the biggest movers are those who have already made big moves! We don’t have an open of 0.8ATR and then trend towards 2.8ATR. I want to work on a system to grade the setups next time. 4) Structuring the trade. Didn’t do a proper job here. Wasn’t completely sure why this was a trade2hold. The setup, elevated volume and intraday price action were strong. 5) Rate the trade pattern. I went through the variables in my head which is enough for the wedge pattern. It’s an easy pattern to spot. Potential to go higher/lower DFS Holding above/below key level? Yes Strong/weak market (bigger picture)? Medium Strong/ weak market intraday? Yes Strong/weak fundamental catalyst? Yes Strong/weak setup? Yes Elevated RVOL? Yes Room to trend on daily? Yes Room to trend intraday? Yes
  • 5. Catalyst & Fundamentals Catalyst: Earnings beat. Setup: Gap down bounce day Premarket pre buzz: >5% Float: 273 million. Institutional Ownership: 85% Short %: 1,73% ATR: 2,73 ATR. Average Daily volume (50 day): 2 million. Daily volume: 8,7 million. Gap%/Gap ATR: -5,8% / -2ATR RVOL: >5
  • 6. HTF support level: 94,50, 9/10 significance
  • 7. TA: First cue of successful bounce day: Strong open. Back through VWAP
  • 8. Wedge/ Trend PB Bullish Trade2hold – Trade Management Trade2hold - Flat Significant 5m close below 20 EMA: 1) close on above average selling volume; 2) a new 5m low that occurs after close; Goal: don’t sell more than 50% when going flat. Reason2hold -Shallow volume and making lower highs. Sometimes the trend is still intact when there’s a significant close above the 5m 20EMA. Trade2hold – Core Exit strategy Hold core, at least 50% of position, until there’s a true reason2sell. When price hits you’re measured move target, hold your core until there is a true reason2sell. Trail up your stop along 5m 9EMA. Wedge Entries Tier 1 at the first lows. Tier 2 at the second and higher low. Tier 3 & 4 as the stocks breaks out. Trend PB When price bounces of the 5m 9 or 20 EMA, enter within 25% of the range. Reasons2sell -Significant selling volume on 5m. -Unable to make a new high on low volume. Double top. -Time. It’s almost closing time (15:45) and we are near HOD. Good to take some profit.
  • 9. Technical Analysis: Wedge pattern Break through OR High. Wedge visible on multiple time frames. Low volume in consolidation. Elevated volume when price breaks out of wedge. Pattern with higher lows and lower highs. Tight pattern! Holds above premarket/ opening range high.
  • 10. Technical Analysis: (HTF) Trend PB 10m holds above 9EMA, 5m holds above 20 EMA. Shallow volume during PB Pullback visible on multiple time frames: 1m, 5m, 10m. Bounce of key level: 108 Elevated volume when PB starts to work.
  • 11. Trade management Entry: I got in after the second low at a 33% entry. I got in too large due to a mistake, therefore I didn’t add. It would have been possible to get a better entry if I had been more prepared calling the 2nd low. Exit: Stop was at the low of the wedge, 1 cent below it. But I changed it later for no reason and got to break even. Not according with my trading plan. I did that because there was an increased 1m volume bar that failed. I was anticipating the breakout here. But it wasn’t the true break out. Therefore, I can’t move my stop yet. I didn’t add so I should hold on to my core with the original stop. Break even: 0R
  • 12. What was the optimal trade management strategy, in order to minimize risk when wrong or maximize gain when right? How does that compare to your trade management strategy? What signals (if any) did the market provide for moving the stop to breakeven, or beyond? Optimal strategy I want to work on is to add one tier on the first low, one tier on the second and enter tier 3 and 4 on the breakout. I ruined this strategy by getting in too big. What was the optimal exit location or locations, in order to minimize risk when wrong or maximize gain when right? How does this compare to your exit location? What signals (if any) did the market provide to identify this ideal exit location? My trade2hold target was 2ATR. But then there was no reaso2sell when we hit that price target: price trended along the 9EMA all the way. I should focus more on the reasons2sell then
  • 13. What could I have done better? • I looked at DFS and thought, this is up too much. This is a biased mindset that leads to underperformance. I don’t know have any data that supports this claim. I know that the intraday price action is extremely strong, and price is trending. Even when price is up 2,64ATR, there were still 2 or 3 opportunities to get in for a trend PB. After I got stopped out on my wedge trade there also was a great opportunity to get long. I should accept that I don’t know how much it will trend higher. I should just be dumb and follow the price action. • I don’t have to worry about price trending all day or not. I should focus on taking playbook trades and follow that trend. I should focus at getting great entries. I should accept that I don’t know what’s going to happen and that I also have a lot of work to do on my exits criteria/system. And that’s okay. But if I am not getting in good trades then I don’t have a proper opportunity to learn.