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

Bear Bull Traders

4 Jun 201904:43

Summary

TLDRThis 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.

Outlines

00:00

📈 Advanced Trading Strategy with AMD Stock Analysis

This paragraph discusses an advanced trading lesson focusing on the AMD stock. It begins with the stock opening with high volume, indicating a strong bullish pattern characterized by higher highs and higher lows. The speaker advises to look for a pullback as a potential entry point for a breakout trade. The importance of observing the 1-minute chart for consolidation and breakout is emphasized, along with the significance of the 15-minute chart for identifying a pullback opportunity. The paragraph concludes with an analysis of the 5-minute chart, which shows an ABCD pattern and strong uptrend, suggesting that buyers are in control. The speaker also notes the bullish hammer candle and the upward-sloping moving averages as positive signals for a long entry. The paragraph ends with a caution about increasing volume and a potential trend change signaled by a break in the 20 EMA, advising traders to protect their profits accordingly.

Mindmap

Keywords

💡Trade

Trade refers to the act of buying, selling, or exchanging goods or services, typically in financial markets. In the context of the video, 'trade' is associated with financial trading, specifically the buying and selling of securities like stocks. The script discusses strategies for trading, such as looking for patterns and entry points, which are crucial for making informed decisions in the market.

💡Pattern

A pattern in trading is a recognizable configuration in price movements that can be used to predict future price action. The video emphasizes the importance of identifying 'bullish patterns' with higher highs and higher lows, which suggest an upward trend in the market. The script mentions an 'ABCD pattern' as a specific type of pattern that traders can use to make decisions.

💡Volume

Volume is a measure of the number of shares or contracts traded in a security or market during a given period. It is an essential indicator in trading as it can confirm the strength of a price movement. The script notes that 'AMD opened up with volume,' indicating a strong start to trading activity for the stock, which can be a sign of significant market interest.

💡Pullback

A pullback in trading is a temporary decrease in the price of a security after a period of increase. It is often seen as a potential buying opportunity. The video script mentions looking for a 'pullback for a possible opening rate' and a 'pullback for a 15-minute opening range breakout,' suggesting that pullbacks can be strategic entry points for traders.

💡Breakout

A breakout is a sudden increase in the price of a security, breaking through a resistance level. It is often seen as a bullish signal indicating that the price may continue to rise. The script discusses 'opening range breakout' and '15-minute opening range breakout,' which are moments when the price moves beyond a previously established trading range, signaling potential buying opportunities.

💡Consolidation

Consolidation in trading is a period of price stability after a significant price movement, where the market is digesting the movement and preparing for the next trend. The script refers to a 'consolidation period on the 1-minute chart,' which is a time when traders might wait for clearer signals before making further trades.

💡Stop Loss

A stop loss is an order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a position. In the script, setting a 'stop loss at or slightly below view app' is mentioned as a risk management strategy to protect profits and minimize losses if the trade goes against the trader's expectations.

💡EMA (Exponential Moving Average)

The Exponential Moving Average (EMA) is a type of moving average that places a greater weight and significance on the most recent data points. It is used to identify trends and is more responsive to price changes than a simple moving average. The script discusses losing the '20 EMA,' which indicates that the price has fallen below this average, potentially signaling a change in the trend.

💡Engulfing Pattern

An engulfing pattern is a candlestick chart pattern where a large candlestick completely covers a smaller one from the previous period, indicating a potential reversal in the current trend. The script mentions an 'engulfing pattern on the 5-minute,' which could signal that the uptrend might be changing and that sellers are taking control.

💡Hammer Candle

A hammer candle is a specific type of candlestick pattern that appears like a hammer, with a small real body and a long lower wick, and little or no upper wick. It often signals a potential reversal from a downtrend to an uptrend. The script describes a 'hammer candle' as a 'very bullish sign,' indicating a positive signal for a long entry in the market.

💡ABCD Pattern

The ABCD pattern is a technical analysis tool used in trading to identify potential trend reversals or continuations. It consists of four points (A, B, C, and D) that form a specific pattern on a chart. The script mentions an 'ABCD pattern forming' and describes how the price action quickly bought back up after a sell-off, which is a good signal that buyers are in control and the uptrend may continue.

Highlights

AMD opened with high volume, indicating strong market interest right from the start.

A strong bullish pattern is formed with higher highs and higher lows.

Traders should look for a pullback for a possible opening range breakout entry.

A pullback on the 1-minute chart is a potential entry point for going long.

Setting a stop loss at or slightly below the entry point is crucial for risk management.

Consolidation periods on the 1-minute chart can precede breakouts.

A new high of the day after a breakout indicates a strong uptrend.

A pullback on the 15-minute chart provides an opportunity for a breakout trade.

Traders should set their stop loss at a specific point, like 'V web', for the 15-minute breakout.

The five-minute chart shows a strong uptrend and potential ABCD pattern formation.

Quick recovery from a sell-off indicates buyers are in control, a positive signal for a long entry.

The 1-minute chart confirms a clear ABCD pattern, which is bullish.

Upward-sloping moving averages and a hammer candle are bullish signals for entry.

Volume increase confirms that buyers are in control, validating a green trade.

Taking partial profit at the next resistance level is a strategy for maximizing gains.

A price action break below the moving average (MA) could signal a trend change.

An engulfing pattern on the 5-minute chart may indicate the trend is changing direction.

Losing the 20 EMA suggests sellers are taking control, prompting traders to protect profits.

Andrew's trade example demonstrates a successful ABCD pattern trade with a 66.5% gain.