Liquidity And Volume Around Key Levels
Hello, traders! Welcome to the Stock Trading Course and the fourth module, Short to Medium Stock Trading. In this lesson, we’re going to learn the first strategy to day trade stocks. And we are going to use liquidity and volume around key levels to do it. Now, the key levels we are going to be using is the daily open, the previous daily close, and the daily pivots as well as the previous swing highs and swing lows. And we are going to be using volume to get our entries and our exits around these levels.
Now, let’s go to the charts, and I’m going to show you how it’s done. Okay, so the first thing we’re going to do is we’re going to look for today’s biggest movers on stocks under 20 bucks. And we are going to look for a volume of over 5 million shares traded today and an average volume of 1 million shares. And the reason we have an average volume of 1 million shares is because we don’t want to be trading in stocks that have initial volume today. This means that sometimes stocks can be very liquid and trade under 100,000 shares. And all of a sudden, because of news, they are going to be trading over 5 million shares. So we want an average volume of 1 million shares traded per day and today’s volume over 5 million on stocks under 20 bucks.
And remember that this is just to find today’s movers on our parameters. So we are going to take the first example, and we are going to look at EXAS. EXAS is a health care company and, well, today, traded 17 and a half million shares and moved 7.54% to the upside. That’s a big gain. And it is a $7 stock, okay? But If you look at the daily chart, a couple of months ago, this was a $25 stock that has been plummeting or selling off constantly.
So let’s go to the chart. And first of all, I’m going explain what we have here. What we have here are the pivot points, the daily pivots with the daily support and the daily resistance. On this chart, I only have the daily support and daily resistance, one, because we don’t need anything else for the first example. I’m going to be adding for the second and third example. Well, if you look closely to the volume at the bottom of the chart, you might notice that the bars are not as spiky as on the other stock, but the reason these bars are not as big is because of this huge bear bar here, this huge bearish volume bar that hit the 7.86 level.
Now, we’re going to be using the pivot points, the volume, and the daily open and the daily close. The daily open is this blue dotted line, and the daily close is this red dotted line. Remember that the daily close is yesterday’s close, and the daily open is today’s open. And what we’re going to do here is we are going to also use the volatility stop to trail our stop-loss, okay? This is very important.
The volatility stop has one function, and it is to define the current trend based on volume and volatility. So the dots that are plotted below and above price are going to help us maximize our profits because if price is in an up move, you are only going to get volatility stop dots at the bottom of price. And when price breaks to the down side, it changes. It’s like the parabolic SAR, only this one is calculated through volume and volatility, which is what we want.
So with EXAS, well, it opened, and there is actually not a setup until it hit the daily pivot. Now, the first thing you need to understand is that we are not going to be trading the open. We are going to stay away from it because the open can get very volatile, and we need price to start testing levels before we actually traded, because we are going to try to get the best risk to reward scenarios.
Now, let’s imagine that we are trading with a $10,000 account on these stocks, okay? Now, you can see the price made a high here of 7.57. Then it sold off, and it hit the daily pivot. Now, let me just zoom in here because this is important, what we’re going to be looking at here.
All right, so the stock made a high of 7.57. Then it sold off and hit the daily pivot. And this is what you’re going to be looking for. Price hits the daily pivot on a big red volume. Then it flattens and immediately turns green. Right here, well, just by looking at the volume and, well, the actual level, a change in volume with a spike on the contrary volume indicates that sellers are entering the market right here. And when this happens, you are going to buy the stock. You are going to buy the stock at this level. Let’s say that you buy the stock right here when this candle closes at the 7.25 level. You are going to put your stop-loss at the 7.22 level. That’s a 3 cent stop-loss. If you want to be wider, you can put it below the 7.20 level, but it really, really doesn’t seem necessary.
So let’s grab this, and let’s open a long position. Okay? Now, I’m going to modify the stop-loss to the 7.21 level, okay? We have no target just yet, okay? So let me just pull this right back down. So we are actually risking 4 cents. And with a $10,000 account, we can buy 1,000 shares of EXAS at this level and risk $40 on the trade.
Now, we are long, so we are going to be following the VStop, okay? The first level where we are going to move our stops is when the VStop flattens right here. So when the VStop flattens right here, we have already locked in 2 cents on the trade, okay? Then it continues up, and we have a new volatility stop, so we are going to move our stops right here, below this VStop.
So now, we are locking in 8 cents, which means that we have made 1.1% of our trade, which is huge, okay? Now, we have a 1:2 risk to reward ratio trade in our hands. We are up $80 on the trade. Remember, we are not scalping here. We are day trading, so we are going to be following the VStop.
Now, when it comes right here at these levels, you want to move your stops to the 7.40 level and lock in 15 cents per share, which means that you have locked in $150 on the trade, if you’re trading 1,000 shares on your $10,000 account. We have moved the stops right here below this level.
Let’s continue with the trade, and you can see right here that we have a VStop that actually got hit. When this VStop appears, we move our stops all the way up here, and we get taken out on a $280 trade in about 25 minutes. So this is very nice. This is the first trade of the day, and we have made $280, okay?
Now, we got taken out and price continued to move on to the upside. That really doesn’t matter, okay? We are following a strategy, and we want to be taken out once the VStop gets taken out, okay?
Now, this is the first example. Now, let me just get rid of this long position, and let me zoom out on the chart. Now, that we’ve had zoomed out, we entered here, and we got taken out right here. The price continued to rally to the $8 level, which is fine. But let’s face it. You are not going to be able to hold your long position through this huge bearish momentum, okay?
Now, this is the first example. Let’s go back to the screener, and let’s find another stock that we could have made money off of. And let’s try the bearish side of things.
Okay, now, we are on the top losers of the day, and let’s have a look at this stock right here. It’s an $11 stock, which lost 4.93%. And it’s an independent oil and gas company. Now, it traded 7.4 million shares today, which is fine. And right now, we’re going to go the chart. So this is the 3 minute chart. Let’s go to the 1 minute chart, and let’s zoom in, okay?
Okay, so this is the open of this stock, and you can see that, well, we have a first push to the up side, and then it started to sell off. Now, this is a move that we are not going to be trading, because there are some breakouts. We broke with the daily open which can be a sell signal. But we want to be trading with the less riskier entries.
So what we’re going to do here is we’re going to wait for a retracement or for the stock to hit some levels. And you can see right here that we are going also to be using the volatility stop for this entry. Price started to test the daily pivot, well, as a resistance. And we have the volatility stop too that comes into play. So we are going to go short right here after this inverted hammer. And we are going to put our stops right here on the 11.44 level with an entry at 11.34 level. So we are going to be risking 10 cents on this. That’s 10 cents per share. And with a $10,000 stock, you can short sell 700 or 800 shares of CNX. Let’s say that we short sold 800 shares. So we are risking $80 on this trade.
Well, you can see that we have a huge spike in bearish volume, but then bulls come back and try to take this high, which they didn’t take it. And we haven’t moved our stop because remember that we are following the VStop. The VStop hasn’t changed so our stop remains or our risk remains open at 10 cents. We did not got taken out. And when price starts to drop and when it breaks with this low, you can see that we started to get some VStops on our side. So we move our stops around break even, and then we follow the VStop to be taken out right here at 11.17. This means that from our entry at 11.34, we made 17 cents per share or $136 on our trade, which is fine.
Well, this is the first strategy. You’re going to be looking for rejections on levels, and then you’re going to trail with the VStop. And you are going to do this on every stock that you find on your screener. And this is how day trading looks like. You make $200 here, $400 there, $136 here, and everything adds up with a limited risk on every single trade. And as you can see on the past example, when we closed the trade, I think there was a 1:8 or 9 risk to reward ratio. This is a pretty nice 1:2 risk to reward ratio. And this is how you’re going to be making money in the long run.