The 2X Inside Day Approach Can Reduce Risk Substantially
This strategy is very no problem finding on an OHLC chart and I'm certain after this tutorial you'll have no problem finding several examples yourself. The first thing you would like is a strong trend proceeding either up or down. Anyone who follows my tutorials or signed up for the courses knows I'm an enormous proponent of going with the latest market trend.
You can see with this example how the stock with this example is trending strongly. You would like to make sure you find good trending markets so that your odds avoiding getting stopped out are substantially decreased whilst your profit potential is substantially increased.
The 2X Inside Day Set up
Once you identify the trend you have to identify the actual set upward. The 2X inside day is a cone shape pattern that has two inside days inside of each other. I developed this setup to find days within a trend in the event the market slows down substantially and requires a breather from volatility. This offers me the means to enter during a quiet period before volatility picks up once again. I also consider the point that no lower lows were made and price action was able to maintain inside the previous low demonstrates continuing strength could be ahead. You can see with this example how each day's high and low are in the previous day's trading range. This is actually the type of set up you want to find when trading the 2X Inside Day setup.
You can get a closer look in the pattern in this example. Notice how each succeeding day is in the previous one. The trading action gets extremely tight which lowers your risk level substantially whenever you enter set ups with low volatility such as this one? The entry is $05 cents above the purchase price high that was made on day three whilst your stop loss level is location $0. 10 below the third day's good deal. The entry signal must be triggered around the fourth day. If your buy stop will not get triggered on the fourth day you need to cancel your order and the particular trade is nullified.
Once the entry stop is triggered it is wise to immediately place a stop damage order below day three minimal. The profit target for this course is set to 4 periods your risk level. In this particular case the risk was merely $0. 55 cents, so the profit target could well be $2.20 added to ones entry price. You can view the entire sequence from entry to exit with this example. Trades with risk of less than $1.00 that have 4 times profit potential are thought very low risk trading opportunities and it’s this that the 2X Inside Day Approach offers.
2X Strategy Works On the Downside
The 2X Strategy works equally well towards the downside as it does towards the upside. You can see with this example how the stock broke the uptrend which is developing a good down tendency. This is a good example of the trading action you want to view before the trade set upward. The beginning of a trend is an excellent place to enter because momentum usually increases as trends continue transferring the same direction.
Once you establish how the market or stock your are trading is a downtrend, you need to isolate the setup. In this case you would again look for 2 days which are below the high price in the previous day and above the lower price of the previous day. Once you see the set up a couple of times you will start noticing it repeatedly when you scan charts for ones daily hit list. You is able to see in this example exactly what the setup looks like.
Once you identify and isolate the setup you can place your market stop entry order $0. 05 cents below the lower made on day three whenever you get filled you need to place your stop loss(buy stop) order $0. 15 cents above the high that has been reached on day three. This example demonstrates the place the protective stop loss as well as the entry sell stop levels head out.
You can see the entire sequence over a daily chart which may provide you with a slightly different perspective on the setup and the entire trade sequence. The key to this tactic is isolating patterns where your risk is very limited such as these two examples I provided for you today. The risk for these two examples was less when compared with $1. 00. This is risky for a trade that can yield anywhere from $2. 00 to $4. 00 within profit.
Next time I will demonstrate more inside day strategies so you can take advantage of low threat entry opportunities.