Contents:
- Introduction
- Why We Revised Our Strategy
- The 10-Step Trading Plan
- Additional Guidelines
- Conclusion: Staying Adaptive While Remaining Disciplined
Testing and Refining Our Trading Strategy
Over the past few weeks, we have been testing and refining our trading strategy to better adapt to real-time market conditions. This modified 10-step trading plan builds on the foundational principles we originally adopted from Oliver Velez’s approach, while incorporating the lessons we’ve learned from actively trading in volatile markets.
Why We Revised Our Strategy
The stock market is a dynamic environment, and while a well-defined strategy is essential, flexibility is equally important. Our recent trades revealed the need for a more adaptive approach, especially during periods of sharp price movements, multiple gap-downs, and high volatility. The revised plan introduces specific rules for counter-trend entries, improved risk management, and clear criteria for re-entries and stop-loss adjustments.
The 10-Step Trading Plan
Step 1: State
Understanding the market’s current phase is the foundation of our strategy. Markets operate in a continuous cycle with four key phases:
- Up: Rising prices, ideal for long trades.
- Top: Slowing momentum, signaling potential reversals.
- Down: Declining prices, suitable for short trades or waiting for a bottom.
- Bottom: Stabilizing prices, indicating potential reversals.
We also observe the space between the 20-period and 200-period moving averages:
- Tight/Narrow State: Indicates consolidation with breakout potential.
- Wide State: Reflects a strong trend.
Current Phase: Consolidation, with potential for a breakout or breakdown.
Step 2: Position and Location
We focus on identifying trades during the Up and Bottom phases of the cycle.
Position: Determines whether the price is above or below key moving averages.
- Positive Position: Above both the 20-MA and 200-MA, favoring long trades.
- Negative Position: Below both moving averages, favoring caution or short trades.
Location: Refers to how close the stock price is to the moving averages.
- Near Location: Close to the moving averages, signaling potential breakouts.
- Far Location: Distant from the moving averages, signaling potential pullbacks or consolidations.
Step 3: Assess Power Bars
Look for green power bars or narrow range bars near resistance, which could signal a potential breakout.
Step 4: Entry
Enter long positions if the price breaks above a key resistance level with strong volume. Alternatively, enter near key support levels if bullish reversal signals appear.
Step 5: Place a Stop Loss
Set an initial stop loss at a logical technical level, such as below recent swing lows or a fixed percentage. Adjust the stop loss dynamically as the trade progresses.
Step 6: Color Change
Monitor for a color change from red to green near key support or resistance levels, signaling potential trend reversals.
Step 7: Profit Take
Take partial profits at key resistance levels or predefined zones. Use trailing stops to lock in additional gains while allowing trades to run if momentum remains strong.
Step 8: Re-entry
Re-enter trades on pullbacks to support levels if the breakout sustains and the trend remains strong. Use tighter stop losses for re-entries and limit the number of consecutive re-entries to avoid overtrading.
Step 9: Counter-Trend Entries
Counter-trend entries are a new addition to the plan, designed to capitalize on potential reversals during extreme market conditions.
- Allowed only after two consecutive gap-downs or a 5% or more drop below the 200-day MA.
- Use smaller position sizes and tighter stop losses to manage risk effectively.
Step 10: Track All Trades in a Journal
Record every trade, including entry and exit prices, position size, and reasons for entry. Regularly review the journal to identify patterns and improve decision-making.
Additional Guidelines
- Capital Allocation:
- Never risk more than 2% of total capital on a single trade.
- Avoid allocating more than 50% of total capital to a single stock during high volatility.
- Gap-Up Strategy:
- If a stock gaps up after multiple gap-downs, wait for confirmation before entering.
- Volatility Awareness:
- During high volatility, reduce position sizes and widen stop losses slightly.
Psychological Discipline
- Stick to the plan and avoid emotional trading. Consistency is key, even if not every trade results in a profit.
Conclusion: Staying Adaptive While Remaining Disciplined
By following this revised 10-step plan, we aim to maintain a structured approach while staying flexible enough to handle unexpected market movements. The inclusion of counter-trend entries, tighter risk management, and clearer re-entry criteria ensures that we remain aligned with our core strategy while adapting to real-time conditions.
As we continue to test and refine this approach, we look forward to sharing more insights and results in the coming weeks. Stay tuned for updates on how this strategy performs in different market environments!
Would you like to try applying this trading plan? Share your experience with us—we’d love to hear how it works for you!
Disclaimer: This post is for informational purposes only and should not be considered financial advice. Always do your own research before making any trading decisions.
Note: Some of Oliver Velez's videos that we examined to adapt his trading strategy include:
- Do You Know The 8 Steps to Improve Your Trading? Find Out Here 2024
- Simple 3 Steps Formula to Stop Losing | Do This RIGHT Now!!!
- Income Trading with the 20SMA | How To Make Money in the Markets Daily
- The Most Reliable Strategy of My Trading Arsenal
- How To Create Generational Wealth
- 3 Keys To Become A Master In The World Of Professional Trading
- The 20 Minute Trader | Oliver Velez
- Intra Day Trading Or Long Term Trading? // How To Reach The Highest Highs Playing Both
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Micro Stock Trader: Week 2 Trading Update: Detailed Assessment and Outlook
Micro Stock Trader: My Stock Trading Plan: Inspired by Oliver Velez’s 8-Step Strategy
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