Although I had some nice winners, this was the nicest setup I saw for the whole last week and therefore is the best candidate for educational purposes.
How I found the stock
Or better said, why to trade this stock on this day? Tesla is on an overall downtrend recently so if we expect the stock price to go lower long term, we look for possible bounce points to catch the pivot points on the daily chart.
I look for stocks that make a big run-up, in this case it was 10 5-min candles only up without any hesitation. A pullback has to happen.
What helps me find out the possible turning point is the parabolic SAR indicator - the yellow squares on my 1-min chart. When they go above my EMA(11) indicator - the red line, I get ready for a reversal pattern to occur.
Then I like to wait for a fake breakout candle using the overlap method which basically says that if the 5-min cycle starts with a green candle (for short reversals), the break of those candles break, breaks the overall trend.
I also like this to happen at certain areas which are usually
ATR - at least 80% of ATR(14) which I get to see with the yellow global trend lines with one click
Camarila pivot points
Previous day’s pivot points
One of my top rules is that a highest volume candle (being above average) needs to lead to the high of the day.
The top rules are:
High volume candle leading to the HOD/LOD (within 4 last candles)
PSAR over 11EMA
at least 3 5-min same color candles leading to the HOD/LOD
Less important rules
At least 80% of ATR reached, or at Camarilla pivot point or at previous day’s pivot point/level
Fake on 5-min or 15-min chart happened before the entry
No entry before 9:46
Entry rules
I enter on the 1-min chart waiting for the candle pattern signal which usually is
fake break then engulfed by an opposite candle
fail to create higher high candle, ending up to be smaller than usual candle
the hanging man pattern
far from the 11EMA (the red line)
double top with lower high on the 2nd top (which is the case of this trade too)
stop goes always to the HOD/LOD
Trade management
I target
5R
VWAP
50% Retracement
whichever comes first, while after a 1R move I move my stop to break-even.
My stop moving is the reason why I got stopped on this trade before it went down again. I was unfortunately not looking at the price action after I moved my stop, otherwise I would enter on the double top pattern, still giving a 5R trade reward.
So why do I move my stop? It is experience. I found out that after I enter, i can survive a double top but not when I get a 1R move. It is just more likely to fail that if a 1R move down goes all the way up to my entry point, that the stock is strong enough to make a new HOD. I got often caught up in being stopped while the trend continued up, so I developed it as a defense mechanism to make my setup work - to have an actual edge on this setup. Small things like this can make your edge fade away and my data confirms it, that this the way to go. Your data might say something else. Also, depending on your personality, it is important to count in the psychological damage you can take. Some traders would hold the original stop without any problem, accepting only 1 out of 4 trades will work and taking a full stop loss. I am not that person, so I adapted it to suit more to my psychological profile.