How I Trade Anticipation Set Ups

Sunday through Thursday I run scans across my stock lists to find 6 stocks that I expect to have breakouts the following morning.  My objective is to enter before they trigger a signal on my breakout scans.  This process also doubles as a market awareness exercise.  If I don't find many, the process provides awareness of market behavior on my time frame.  The same if there are are more candidates than manageable.

When there are candidates found I set up the parameters of the trade in a spreadsheet.

Trade Parameters

The spreadsheet calculates my stop, targets, and distance from close to my entry which acts as a filter.  As I am expecting these to breakout, I am more stringent on the distance as there is no point entering a stock that would otherwise show up as a breakout.  With stocks between 10 to 25 I generally filter around 2%, under 10 I'll allow a little more percentage wise, and over 25 I'll start to look at the distance in dollar values. 

The spreadsheet also notes the high of the day which in the current example is at the close of Friday.  So I know 2 triggered.  When they trigger, I follow the price action over the next ten days and note whether or not price reached 2-1 or 20%.  This process also gives me information about the market on my time frame.  It informs if anticipation setups are working well in the current environment.  It informs me of the max profit potential of the trades over a ten day horizon, and whether or not my targets are being hit during these moves.  In general I look at taking half off at 2-1, trail a stop, and aim for the 20% threshold.  But, if 2-1 is all the market is giving I'll look to take more off or exit completely.  If 20% targets are being hit with frequency and the market is hot, then I'll look to push the edge to capture more.

With the parameters set, it's time to set alerts.  Of the list above I settled on 5.

Trade Alerts

Alerts also double as a market awareness exercise.  While I am willing to allow an hour from open to take these trades, ideally an anticipation trade should trigger an alert within the first 30 minutes, preferably within the first 15.  If all of them trigger it informs me about market direction for that day.  None of them triggering tells a story as well.  After the opening hour stocks that didn't trigger anticipation will be followed for triggering a break out later in the day.  This is a FIFO process and I predetermine how many I will take based upon current held positions.

After one triggers and I enter the trade, I'll set my stop and target alerts.  Within the first 30 minutes this is the price action I expect.

Expected Price Action

At no point after entry is that price point challenged.  This indicates that I am on the correct side of the order flow for my time frame. 

By the close the daily bar confirms the trade and is therefor held.

CAE Daily

The second trade I took that morning was IOVA which triggered and showed price confirming that I was on the correct side of the order flow for my time frame.

IOVA: Expected Price Action After Entry

However, by the end of the trading session price action on the daily time frame did not confirm with a breakout and closed below entry which is an exit signal for a small loss.

Price Fails to Confirm Daily Breakout

Once a trade is taken the management is as follows: 

• EOD close > Entry or jettison the trade
• Day 2 Close > Day 1 entry or jettison the trade
• Day 3 premarket move stop to BE
• Day 3 if no profit targets are hit then take half off EOD and move stop to LOD
• Trail stop to each successive higher low, take off remainder at 2-1 or stop hit
• If 2-1 target hit, continue to ratchet LOD stock and aim for 20%