TECHNICAL TRADING – A method to trade the securities by lining the probability favorable to traders.
TECHNICAL ANALYSIS – The process of finding the best probable trade setups. There can be multiple different ways to find one. One can use price actions, or use indicators to perform such analysis.
For a change, I am going to talk about the price action trade setups. One of my favorable ones is.
Short Squeeze trade.
(caution: the short squeeze data is always delayed to common traders)
This will let us find one of the profitable scenarios, quicker with little effort.
First I run a quick scan of tickers with high short interest (30% is my favorable %) 20% + and look for the short ratio (or so called days to cover) greater than 5 (I prefer 10).
(I am not going over what short interest and days to cover means, you can find them on google)
Hunting territory (http://www.shortsqueeze.com ) of course I do have a subscription here, and not promoting.
Or you can http://www.otcmarkets.com/market-activity/short-interest-otc look here for the OTC short interest.
You can use a less reliable and free extracted version from here, http://www.highshortinterest.com/
Before we move on to the next step, I expect everyone to have a general idea about the chart patterns.
If you want to assess yourself, here are few questions.
- What is the difference between butterfly and bat pattern?
- Wedge pattern and Inverse Wedge pattern, differences?
- Differentiating a triangle pattern and Flag pennant?
The questions are arranged in Advanced, Intermediate and Basic chart patterns. So, if you can answer question 1, then you must be a pro with the chart patterns. If you can’t, I would recommend at least spending a couple of weeks learning and practicing the chart pattern.
Second step, is finding the favorable patterns from the short squeeze tickers.
a) Looking for Oversold patterns, i.e., 30 or less in RSI (I tend to look for less than 38.2 since I run scans during the weekend, 38.2 is just a fib number)
I have earlier told that I love Overbought, there are some of the specific oversold patterns I like playing, this is one of them, since the short interest is huge and the ticker is oversold, I try to play the breakouts, mostly using stage analysis.
b) Bullish chart patterns favorable for breakouts
Falling wedge after a breakout, is also an Elliot wave 2, A breakout candle and a consolidation period can be Stage 1 (base formation) etc…. (there are tons more, only practice make it easy).
Third step, is finding your estimated target and possible profit percentage to add the tickers to your watch list.
Fourth step, Identify stop loss limits.
Fifth step, executing the plan (Buy high and sell higher).
Last but not the least, Exit when your plan goes wrong. Have a contingency plan when in a trade, like locking in gains at some obvious levels of resistance.
CAUTION NOTE – SAFETY FIRST:
DEVICE YOUR OWN STRATEGY FOR EVERY SETUP DISCUSSED, I CAN ONLY SHOW YOU THE TRADE SETUPS ITS TOTALLY UPTO THE READER TO FIGURE A STRATEGY TO TRADE THE SETUP, DO NOT TRADE WITH MY STRATEGY, PRIMARILY BECAUSE YOU DON’T /MOST LIKELY WONT SHARE THE SAME PERSPECTIVE.