My Trading Playbooks

PLAYBOOK FOR CATALYSTS

1. NEGATIVE DIVERGENCES

Happens when price runs opposite to how it should have based on the catalyst.

For example, negative catalyst should have caused prices to tank, but price goes up, or swiftly recovers back to pre-catalyst levels.

Especially useful for identifying leaders - the first to recover are the likely leaders, most able to absorb losses, and most likely to run if the market recovers. They should be bought into. Logical stop would be at post-catalyst lows.

2. BREAKOUTS

Useful when price has been rangebound, building a base, and a catalyst sends it out of the range (bonus if in direction of longer term trend, or if the base is big).

Buy into the breakout, logical stop at post-catalyst lows, which would indicate breakout failure.

If price gaps up too far from the breakout area, wait for retest, or for price to consolidate, or for moving averages to catch up.

PLAYBOOK FOR RELATIVE STRENGTH

3. RELATIVE STRENGTH

Very similar to negative divergence mentioned above, if there is a broad market selloff in the absence of a catalyst, likely leaders are the ones that hold up best / turn green first / recoup all losses most swiftly. These should be focused on.

More effective when combined with a reversal candle, or price pattern.

PLAYBOOK FOR TREND FOLLOWING

4. FOLLOW THE TREND

Direction of trend determined by whether price is above or below all key moving averages (10, 20, 50, 200 day). Look for entries where there are reversal candles in direction of trend or continuation patterns like flags. Bonus if price bounces off moving averages.

Trends can last longer than expected, so do not bother to call the top or bottom. But cautious if there are signs of overextension - e.g. price trading more than 7x average true range above 50 day MA, price going parabolic where price going straight up with bigger gains on successive days.

If daily chart shows downtrend, while weekly chart shows uptrend, always err on caution of longer term trend. Clash of trend timeframes can lead to choppy markets. Smoother trends occur where multiple time frames are agreeable.

PLAYBOOK FOR RANGE BREAKOUTS (no trend, no catalyst)

5. RANGE BREAKOUTS

Range defined as directionless market, where short and/or longer term moving averages have flattened out. Bonus if base is large - multi week or multi year. The larger the base, the higher in space.

Without a catalyst, the breakout may be less sustainable and there might be more choppiness at the breakout pivots. Catalyst breakouts (covered earlier) typically bring about higher volume, and more assertiveness in the move. Correlated markets may be watched to add more confirmation behind the breakout where there is no clear catalyst.

Stop may be placed at low of breakout day, or given a wider buffer due to lack of catalyst. A breakout that comes swiftly after an initial failed breakout has higher probability of success.

PLAYBOOK FOR CAPITULATION

6. CAPITULATION

Capitulation defined by high volume sharp selling where price escalates quickly to downside following a period of sustained selling pressure. Blow off tops will be the opposite. Important to note that the trend must already be well established - up or down. The capitulation is more like a final flush where stops are triggered.

Look for break in key longer term supports, followed by swift reversal in opposite direction. Bonus if correlated asset classes are also capitulating at the same time, and seeing similar reversals. Final capitulation may sometimes occur on a catalyst, and can be combined with the catalyst - negative divergences playbook.

Most effective when capitulation occurs in favour of the primary trends. For example, a market that has been on a strong uptrend, enters a multi month range, capitulates at the bottom of this range, and then swiftly reverses and is now primed to continue its original trend (upwards).