Day Trading Advanced Lesson 3: How to Trade ABCD Pattern (Opening Range Breakouts, ABCD Pattern)

Summary

This advanced trading lesson focuses on identifying and trading the ABCD pattern with AMD stock. It emphasizes the importance of volume, higher highs and lows, and pullbacks for opening range breakouts. The video demonstrates how to enter trades during consolidation periods and take profits at resistance levels. It also highlights the use of 1-minute and 5-minute charts to spot bullish signals and warns of potential trend changes, such as losing the 20 EMA, indicating a shift from pullback to a new direction.

Takeaways

• 📈 Look for strong bullish patterns with higher highs and higher lows as potential long entry signals.
• 🔍 Use the opening range break as a strategy to identify potential entry points for trades.
• ⏱ Wait for a pullback on the 1-minute chart to confirm the uptrend before going long on an opening range break.
• 🛑 Set a stop loss at or slightly below the entry point to manage risk effectively.
• 📊 Observe consolidation periods on the 1-minute chart for breakout opportunities on new 15-minute candles.
• 📉 Be alert for signs of trend reversal, such as a price action breaking the moving average (MA) and forming an engulfing pattern on the 5-minute chart.
• 📈 Recognize ABCD patterns as a bullish signal, especially when the price is quickly bought back up after a sell-off.
• 📊 Check moving averages for their slope to confirm the direction of the trend; an upward sloping MA indicates a bullish trend.
• 📍 Use the hammer candle on the 1-minute chart as a bullish signal for potential entry points.
• 📈 Take partial profits at the next resistance level to secure gains while the trade is in a green position.
• 🚨 If the price action indicates a trend change, such as losing the 20 EMA, protect profits by closing the position.

Q & A

What is the initial condition described for AMD's stock at the opening?

AMD's stock opened up with volume right from the start, indicating a strong start to the trading session.

What trading pattern is mentioned as being created by the price action?

The price action is creating a strong bullish pattern characterized by higher highs and higher lows.

What is an opening range breakout and why is it significant?

An opening range breakout refers to a situation where the price moves outside the range it opened within, often signaling a strong directional move and a potential entry point for a trade.

What is the recommended action when observing a pullback on the 1-minute chart?

The recommended action is to wait and see if the uptrend is going to hold or sell off before deciding to go long for an opening range breakout.

What does the term 'consolidation period' mean in the context of the 1-minute chart?

A consolidation period refers to a phase in the market where the price is moving within a narrow range, indicating indecision among traders before a potential breakout or breakdown.

What is the significance of a new high of the day on the 15-minute chart?

A new high of the day on the 15-minute chart indicates a strong upward momentum and could be a precursor to further price increases.

What is the strategy for trading a 15-minute opening range breakout as described in the script?

The strategy involves looking for a pullback to enter a breakout trade after the pullback, setting the stop loss at a specific level, in this case, at 'V web'.

What does the script suggest about the presence of an ABCD pattern on the charts?

The script suggests that the presence of an ABCD pattern, especially when accompanied by increasing volume, is a positive signal that buyers are in control and it could be a good entry point for a long trade.

What is the importance of the moving averages in the context of the provided script?

The moving averages are important as they indicate the trend direction. In the script, the moving averages are still sloping up, confirming the uptrend and providing a bullish signal.

What does the script imply about the 'hammer candle' on the 1-minute chart?

The 'hammer candle' on the 1-minute chart is described as a very bullish sign, indicating potential strength in the uptrend and a good signal for an entry.

What is the suggested action when the price breaks the 20 EMA in the script?

When the price breaks the 20 EMA, it is suggested that it is no longer a pullback and sellers are taking control. The trader should protect their profit and exit their position.

How did Andrew trade the ABCD pattern as described in the script?

Andrew traded the ABCD pattern by going long at 2790 after observing the price quickly bought back up, which was the entry signal for him. He then took profits at the next resistance level at 28.44.