Intra-Day Golden Rules: Entry/Exit Setups

This chapter is hands-down the most fundamental step-by-step portion of my intra-day trading strategy. Before I begin, however, I want to make one crucial point crystal clear.

If you've fast-forwarded to this section without reading everything previous to it, then you will not grasp the material. You'll end up applying what I'm teaching with a one-dimensional viewpoint, and that's a recipe for disaster. If you are the reader I'm talking about, then I'll assume that you're seeking a quick-and-easy strategy to make huge profits right away. That is not going to happen. Anyone who promises that is scamming you, and that guy isn't me. So please go back and start from the beginning.

To the readers who've been with me since the first page of this book, my apologies for that tirade. But I have to lecture you a bit also. Even after thoroughly reading this section and committing every lesson to your memory, prior to going live with real money, you will need formal training. You can certainly test the system by paper trading, but it won't start to truly work for you until you've learned it hands-on.

I'll begin with the Golden Rules. Then I'll present guidelines and procedures that must be followed to the T.

The Rules Explained

1. Rule No. 1 : Always know your second entry before you enter your first trade.

This is all about preparation and self-discipline. Before you enter your first 100-share trade, it's imperative that you know your second. That sounds simple, right? But in order for this to work, you have to know your price levels, and that takes some planning and organizing.

The main purpose of this rule is to scrutinize your trading reflexes, to make you slow down and think extra hard about exactly what you're doing. It forces you to strategize with your price levels as the main plan.

If you just jump into a trade with no idea of what you'll do if it happens to run against you, then you're trading as blind as a bat. Remember: this system is countertrend. So chances are the price will run against you. When that occurs, simply find your lower/higher price levels.

Sometimes the price goes back into the green—sometimes within seconds. Great! You just made $15 in a heartbeat. But more likely your trade will run to the next tier. Your job is to be ready to reenter at your second or third tiers and then readjust your profit targets. In Chapter 4, I show you how to do that with fastkey order execution. For now, I just want you to absorb the fact that planning is everything.

A pro-trader's goal is to be very consistent and totally confident in his trades. If you plan for and enter any trade knowing that no matter what happens, you're prepared, then you are on the right path. Following this rule will provide you with psychological benefits. Once you master this system, after you enter a trade you will never be worried or scared. If I knew this back when I was a novice, I'd have far less gray hair now.

Amateurs mistakenly think that their first entry must bring a profit. If their initial trade doesn't go green right away, they get cold feet and they stop-loss. That's a great way to lose all your money. To be a pro-trader is to have a great plan, and no matter what happens, you're cool.

1. Rule No. 2 : On all of your initial trade setups, you must have at least one daily price level within $3 of your first entry—if not, then no initial trade.

This rule is the absolute core of my new system, the fusion between intra-day and swing setups. The point of ensuring you have a daily price level within $3 of your first entry is to capture a swing pivot on your intra-day setups. That way, if your intra-day trade doesn't reverse for 15 cents (profit) by the close of the day, and you have to stop-loss on those shares, you can hold your swing 100-share position overnight and then recapture your loss the next morning by running the trade for a $2+ profit.

When I teach you my swing trading strategy, you will learn that certain daily price levels are or become swing levels. So intra-day trading by using daily levels is your first step toward mastering swing.

Of course, swing trades are much more involved than trading a daily level. I cover this in Part 3. For now I just want you to focus on the fact that you should never enter an intra-day trade unless you have a defined daily price level within $3. Figure 3.1 illustrates this.

The chart in Figure 3.1 shows how I waited until the price came up to 232.37, within $3 of the nearest daily level (at that time). Once the current price was within $3 of the next daily price level, I could start looking for resistance levels to trade.

1. Rule No. 3 : You must have a maximum of three tiers for each trade setup (300 shares).

In my system, this rule is the main risk minimizer. This is the one rule that Wall Street doesn't follow. Of course not! I can guarantee that Wall Street buy/sells much more than 300 shares per trade setup.

“But it can't be that way for me. I may be a professional but I'm not a whale trader—a guy with millions of dollars to trade.” Very few traders are. Accordingly, most of us must limit our exposure to market risk. We cannot trade every single support/resistance level all throughout the day. For instance, our $100+ stocks can have as much as 20 intra-day support/resistance levels. Our job is to find the strongest three tiers (price levels) on each setup, which is not the same thing as trying to trade every strong level that forms.

This makes my system conservative. “Conservative?” you might ask with surprise. I'm aware that “conservative” applied to day trading sounds like an oxymoron. The word contradicts the dare to take risks, and people think day trading is dicey. But day trading is only high-risk if you trade at high-risk levels. The levels I trade at are strong and low-risk.

If you follow my coaching you'll place far fewer trades when waiting for those levels to hit, but once you add the swing trades I've added to my system, you won't be so caught up in placing 15-cent intra-day trades, because you'll also be capturing swing trades for $2 profits ($200 on each 100 shares). That's when you'll realize that “conservative” and “profit” can and do come together.

Another conservative measure is you don't hold an intra-day position overnight. That means if your trade doesn't go green, you have to stop-loss at the close. Not holding and limiting yourself to three tiers keeps your trading in check and forces you to trade the strongest levels. See how conservative can work here?

I prefer the word safe. My goal is to help you keep out of the poorhouse. I'm not saying I don't trade more than 300 shares intra-day, or more than 100 per tier; I'm talking about you, the novice. After you've mastered this system, on each of the three tiers you can trade more than 100 shares, but you do that on the swing system, not on the intra-day setups, and intra-day is where a beginner should start.

(Of course you'd rather go big (more than 300 shares) on swing trades for $2.00 profits, as opposed to 15 cents. But let's not get ahead of ourselves.)

1. Rule No. 4 : Your initial entry (first 100 shares) can be off any intra-day high/low or any prior level.

Don't confuse this with Rule No. 3. That rule focuses primarily on the daily price level (always being within $3 of one), which is also a prior price level. With Rule No. 4 I'm pointing out that your initial entry can be off a newly formed high/low of day (intra-day level) or any of the other prior levels (pre-market high/low or previous day high/low).

In other words, your first entry can be off any of your whiteboard prior levels during the first five minutes of trading, or it can be after the first five minutes, when a new intraday high/low may have formed; that can also be your first entry. As long as you apply all of the Golden Rules, you can enter your first 100-share trade.

1. Rule No. 5 : Never have two entries within 50 cents of each other.

This rule is fairly straightforward. The main purpose here is to make sure your levels don't overlap, and to weed out the weaker of two possible support/resistance levels.

For instance, if you have a previous day high at 155.20 and a pre-market high of 155.50, you should not trade both because you may as well be entering the trade with 200 initial shares. When less than 50 cents apart, you're basically trading one price level. This is overexposure to risk. Also consider you only have three tiers (300 shares max), so it's important to choose your entry levels very conservatively. If you have two levels within 50 cents, always pick the stronger of the two.

In many cases you'll have more than four levels to choose from at any time throughout the trading session. I expand on this later. For now, here's a simple scenario to clarify this rule.

Suppose you have these four price levels:

1. 155.20—Previous day high
2. 155.50—Pre-market high
3. 157.00—Newly formed intra-day high
4. 157.25—Daily price level high

The current price is at 155.00, and is starting to shoot up. What price levels do you trade? Use the Golden Rules as your answer.

You need to have a daily price level within $3, and we have that here. But some of the levels are within 50 cents of each other. You always have to know your second entry before your first one, right? That's enough information to make your decision.

I would enter off the 155.50 level at my first entry because it's within $3 of the daily price level at 157.25. I would skip the first 155.20 because it's within 50 cents of 155.50, and I would skip the 157.00 intra-day high because that, too, is within 50 cents of 157.25.

1. Rule No. 6 : When intra-day trading, your entry price will always be a static 25 or 50 cents past your chosen support/resistance level.
   1. 25 cents past intra-day high/low levels
   2. 50 cents past prior levels

I list this rule last because you don't even consider applying it until you've utilized all the previous rules.

Your entries will always be either 25 or 50 cents past your price levels, with no exceptions. If you don't go 50 to 25 cents past, you risk making your entire 3-tier setup drastically off. Keep in mind that 50 cents times three 100-share entries is $150 (opportunity cost). Therefore, when utilized properly, this rule saves you $150.

You will soon learn the logic behind this. For now I can tell you that 95 percent of the time, your support/resistance price levels will get broken and run 25–50 cents past before they have a chance of reversing to profit target. This rule helps to absorb that incremental loss. This rule is the backbone of the entry strategy that I introduce in Part 3.

Mastering the Three-Tier Max Strategy with 100-Share Block Trades

Figure 3.2 represents the framework of my 3-tier setup. Note that the levels and entries follow the Golden Rules to the T.

You'll recall that this single directive to limit yourself to three tiers, or 300 shares, is 100 percent my own strategy. Wall Street pro-traders go much more than three tiers and they exceed 100 shares per entry. They can because they have millions, if not billions, of dollars. Do you? If not, then you should follow my directive, because it will keep you relatively safe.

Conservative price levels with small 100-share block trades means extremely overbought/oversold situations. Your focus on seeking 15-cent profits adds to the certainty of the overall trade making you bucks before the bell rings. If you're patient and you know your price levels, and you apply the Golden Rules with exacting precision, then your 3-tier setups will become $45 profits (15 cents times 300 shares) 90 percent of the time.

You might ask: “What about the other 10 percent of the time?” In Chapter 4 (the fusion on intra-day and swing), you'll learn how to take a 300-share intra-day loser and turn it into a winner. You'll find that you can do this by running it for a $2 profit off a major swing level. For now, however, I want you to focus on learning the intra-day basics.

In my hands-on training program, I have trainees practice and not go live with their intra-day setups. The reason why is at that stage, they take more losses than they should, mainly because they haven't yet learned how to turn things around with a swing trade. When they practice this intra-day strategy, and they're in the red after a 3-tier setup, I tell them to stop-loss by 4 p.m., when the closing bell rings.

“Why is this?” you might ask. “Why can't they hold overnight?” Because that was an intra-day level they were trading. It was only good for that day. Once you learn both strategies—both intra-day and swing—this will make a lot more sense. Such questions and head-scratching are proof of the wisdom of not thumbing ahead and reading out of order when you're tackling the material in this manual. Figure 3.2 illustrates how I use three price levels for my 3-tier max strategy.

Understanding the Wisdom of 15-Cent Static Profits

It just can't be said enough: you need to keep your profit targets consistent and conservative. In my system of intra-day trading, the 15-cent target is designed to achieve this. It happens to be the sweet-spot of numbers; because the market loves to trade off the general 25-cent barriers, the 15-cent max profit will never need to travel through more than one of them. In other words, if your exit price (15-cent profit target) does not break through two 25-cent barriers, then this increases the likelihood that you'll quickly gain a 15-cent profit. I explain this in depth later.

Also consider that when you trade through a pay-per-share broker, you can afford to make such a small profit off each of your 100-share trades. You should only be paying $1.00 max per execution in 100-share block trades. So after $1 to buy and $1 to sell, you net at least $13 on intra-day setups. Typically it will be a 2-tier setup or the max at 3-tier. So when you limit your profits to 15 cents, you'll earn $15–$45 on each trade.

Those stocks can fluctuate 15 cents in 10 seconds. That doesn't mean you earn $15 every 10 seconds. What it means is you've patiently waited for your target entry price to hit, and when it does your trade can go green very fast. (In order to make this work properly, you need fastkey order execution. I get to that in Chapter 4.)

The final point I want to make here is that you shouldn't be trying to earn more than 15 cents on any intra-day trade, because your goal is to hit the swing levels and run your trade for a hefty $2.00 profit ($200 on a 100-share trade). In essence, the smaller intra-day trades don't even have to be placed. You, as a beginner, need to master them first.

I view the intra-day setups as supplemental income. They help pass the time while I wait for the bigger and more profitable swing trades to trigger. Because I'm a seasoned trader, I rarely place intra-day trades for 15 cents anymore. These days, all my trades become swings because I plan it that way.

Eventually you'll be in my shoes. But you must learn to crawl before walking, and learning to swing is for sprinters. There is absolutely no fast-tracking this system, or for that matter any day trading system that deserves to be called valid or safe.

Figure 3.3 shows how it can take all morning to hit an intra-day setup, but within seconds it pulls back for the 15-cent profit. So your trade can profit in no time, but before it triggers you're required to do considerable waiting and planning. This chart also shows how it took over 15 minutes for the intra-day level to form, and then it finally broke. After I entered the trade, it profited 15 cents in the next candlestick, less than one minute later. Note that the price kept going higher, after I exited.

You might ask: “Why didn't you hold on longer for more profit?” I love it when I'm asked that 20/20-hindsight question. First, how the heck can you know it was going to continue more than the 15 cents? If you could predict that with certainty on every trade setup, you'd be a billionaire! Looking at a chart afterwards is easy, but trading in real time is a whole other beast.

I had no clue it was going to continue to rise, but I did know that my 15-cent target was very likely to hit. The lesson here is don't get greedy! Stick with 15-cent profits on intra-day setups. If not, you will chance toward that slippery slope of inconsistent trading. For instance, if you start to allow your profits to run to 20 cents, 30 cents, 50 cents, I can guarantee that you're going to lose big and never become a pro-trader. If you try to get even 20 cents on each intra-day setup, several of your trades will hit 18 cents in the green and then tumble all the way back down and you'll hold a losing trade all day. And if you're truly a haphazard trader, you'll hold that losing position overnight. Does the gambling mentality come to mind here?

In that scenario, all you had to do was take your 15 cents and be happy. Your trade hit 18 cents in the green, but you just had to have 20. Consider how silly that is. Why would you risk an additional 5 or even 10 more cents in profit (or try to get 20–25 cents each trade) when you're waiting on a swing setup that will get you a full $2.00 profit? When you learn to do swing trades, this will instantly make sense.

Observing the Framework of Entry and Exit Strategy with Step-by-Step Procedures and Guidelines

Before I jump into the steps, here are some basic pointers. I've said it before and I'll say it again: you're looking at the map here, not the road; I cannot say “this is only the framework” enough.

Each stock you acquire and begin to trade with my system will have to be tweaked a bit. As I mentioned previously, some stocks move faster than others; some stocks have fewer tiers to trade; some stocks react differently at swing levels, and so on. The point is my guidelines are general. These lessons don't apply across the board. This is a major reason why you need to be formally trained. Even after I train you, it will take you some time to get married to your stocks. It's all about patience and due diligence. I'm sorry, but I can't offer a simple, straightforward golden-goose strategy. There is no such thing.

Previously I briefly went over the general market price barriers: .25–.50–.75–.00. In this section I map the generalities on when to enter/exit an intra-day trade. I've shown you how to gather your whiteboard (prior) price levels, and I've shown you how to confirm a newly formed intra-day high/low (the 5-candlestick rule for resistance/support). Now you just need to know what price to enter at once your prior or new levels break.

Remember the number-one principle of reverse-countertrend trading: we only enter after our predefined price levels break. And remember this Golden Rule: you enter your trade at exactly 25 cents or 50 cents past your entry price level.

You won't be required to trade using the general market price barrier technique, but it does help to reinforce why I go 25 and 50 cents past S/R levels:

• Every 25 cent level is a standard/general market price barrier, whether you're entering or exiting a trade.
• There's general market resistance, regardless of intra-day support/resistance levels, when the stock breaks through these price levels:

My system of entry/exit points is based on the probability that once an intra-day support/resistance level breaks, and the price continues to travel past that intra-day level, the next general price barrier is the very next 25-cent level. So if you enter a countertrend trade after this overbought/oversold price level, then you're likely to see the price reverse 15 cents into the green.

Also consider that when the price runs on our $100–$250 high-priced stocks, they've reached extremely overbought/oversold intra-day levels. This happens in a relatively short amount of time. Since their previous intra-day high/low price levels, they most likely have traveled $1 to $3. Therefore, your 15-cent profit target is very conservative.

What does this mean? The price run is 10 times more likely to reverse for a quick 15 cents than to travel another $3 parabolic price hike. Therefore, it's important for you to understand why you should wait for the price to run the full 25 to 50 cents. I've made some basic rules for both entry and exit to help it all click.

1. Rule of Entry When the intra-day support/resistance price level has been broken (the one you chose by using the Golden Rules), you want to enter the trade on the initial time it breaks past that level by exactly 25 or 50 cents.
2. Rule of Exit Once you've entered a trade, you exit on the initial time it hits your 15-cent profit target.

Think about it: if you need to break a 25-cent general market barrier on your entry, then all you need to do is go 25 cents past the support/resistance price level. If you're exiting, then my static 15-cent profit target satisfies the rule of exit. But again, you won't enter 25 or 50 cents past with all stocks or all situations, especially when you learn the swing strategy. In swing you will go as much as $1–$2 past certain price levels. When I say the word initial, I cannot stress it enough.

When the price approaches your target entry/exit price, you should be waiting for it to hit the first time in real-time. When the price initially hits, you should either be entering or exiting the trade. As I've mentioned before, fastkey order execution is the tool you need here, and teaching you that will be part of my instruction.

Entry Strategy

Figures 3.4 and 3.5 are for both support and resistance levels. The charts show the general idea of countertrend reverse trading and how you're breaking through a general market barrier on every trade. They also illustrate the fact that you enter on the initial breakout.

Exit Strategy

When you enter a trade you must always hold the position for at least a 15-cent profit ($15 profit on each 100-share block) before you exit.

On the chart setup in Figure 3.6 I illustrate how to apply the exit strategy.

I entered a short position at 158.72. This was exactly 25 cents above the newly formed intra-day level of 158.47. Within seconds after I entered the trade, the price pulled back for 15 cents for my profit target. I exited at 158.67.

At first glance this looks like a simple cookie-cutter setup. You will see this similar pattern all over your intra-day one-minute charts. Had I not known how to use fastkey, however, this trade would have been missed, and could have kept going higher.

Implement the Golden Rules before every trade, exit on the initial price hit of your 15-cent profit target, learn fastkey order execution, and you've mastered the beginning of my system.

The Wisdom of Using Strategy Stop-Loss

No novice day trader likes to place a stop-loss. But as I've told you before, all pro-traders understand that it's a normal part of the day trading process. During my discussion of updates and changes, I initially mentioned that my current system redefines stop-loss. It changes how or when you should execute one, and I call it strategy stop-loss.

To those readers who have been under my mentorship, I want to remind you again that I no longer use nominal value stop-loss exits. Now that I use swing trades as major pivot points, it makes absolutely no sense to stop-loss when I'm $XXX in the red. Instead, when accumulating a position, I capture even stronger levels. This I clarify later. For now I'll show some examples of strategy stop-loss in some easily defined situations.

When it comes to applying a stop-loss, intra-day trades are different from swing trades. As you know, you cannot hold an intra-day trade overnight, so you have to close the intra-day positions before the bell rings at 4:00 p.m. Therefore, you must get accustomed to taking a short-term loss on some trades. This does not mean your net trade is a complete loss. I explain this in Part 5 when I discuss pivot trading versus stop-loss.

The most common situation where I strategy-stop-loss is—you guessed it—at the closing bell. As I've mentioned before, this doesn't apply in swing trading. Swing positions you can hold overnight.

Remember that when you use my system, you do not exit at a loss simply because the price runs against you. This may be hard to swallow, because in most cases the price will run against you. This is totally normal with my system and you need to get used to it.

“Why?” you may ask, totally puzzled. This point may be difficult to grasp, because this system—no matter whether intra-day or swing—will show you that if you're in the red, then you're about to hit even stronger entry levels, those levels you need to enter at; so why would you be exiting at a loss when you should be adding to your current trade at stronger price levels? The answer to this question will take time and experience to know. Even after learning the framework here, this is by far one of the most critical reasons why you can't learn this system entirely on paper.

Chances are you've been taught to stop-loss when down a certain amount or percentage. That's how most amateurs trade. In my training program, you learn the exact opposite. As I initially mentioned in this book, you need to be reprogrammed, and I can't do that without coaching you, and I can't coach you on paper.

The hardest part of this system is not getting scared when in the red. To be a real day trader, you need thick skin. Most traders who attempt this without formal training make the same mistake: they cut their profits early, break even, or simply stop-loss when deep in the red. On the contrary, when you're using my system, you'll find that if you'd held a bit longer and added to your position at key levels, then that would have been a profit.

I'm sure you've had this happen: you exit a trade at a loss, and 10 minutes later or a day later the stock price reverses back to the green, but you left it already, so no dice. I can promise your fear will make this happen to you if you don't master this system. Even advanced traders in my one-year program still struggle with this psychological barrier.

Remember: this is countertrend trading. I don't expect it to make much sense right now, but I promise that later you'll understand why I don't use nominal values or percentages to determine a stop-loss exit. Think about it. If I were to stop-loss every time I got $3 in the red ($300 loss on 100 shares), then about 90 percent of all my past profitable trades would be losses instead, to date.

In the swing strategy section you'll learn that you should start intra-day trading positions once your intra-day setups are within $3 of your swing entry. Again, this does not mean you simply enter a trade once you're within $3 of a swing level. It certainly isn't that easy.

For now I want to get you used to intra-day trading while in the red as much as $3. That translates to $300 in the red when holding a 100-share position. This is perfectly normal when you use my full system, which means you're setting up your intra-day trades so that they hit swing levels. In Chapter 4, I show you this fusion.

For now you just need to internalize these hard-to-digest truths: that you never hold your intra-day positions overnight, and you may have to stop-loss on them at the close.

Below is the list of directives you read in Part 1. As a trainer I've learned that not following these tips is the main reason why many fail at day trading, so I've decided repetition is an aid.

• Always have a predetermined exit strategy. Never hold an intra-day position past 4:00 p.m. at market close. Never hold overnight.
• If you accumulate more of a swing position intra-day and are using margin/leverage, then you must stop-loss the amount of shares on margin. (Later I introduce what I call pivot trading. This strategy allows you the opportunity to recapture the amount lost today on the very next market opening.)
• Never hold any position into an earnings release (typically in aftermarket trading). Exit your entire position by 4:00 p.m. on the day of earnings release. This is especially true for swing positions that you can hold overnight—just never into earnings release. It's way too risky to hold into a release, because once Wall Street starts trading, the stocks we trade can easily fluctuate $30+ in either direction. That's a $3,000 loss, even with only 100 shares, if you get the call wrong.
• Never allow standard stock-related news to dictate your entry/exit process, except when your stock is literally hitting the “breaking news” wire on MSNBC. Combined with other factors, such as the volume on the stock and how many shares and which tiers you're in, only then should you think about just exiting when in the red. If you're in the green, that's great, but if not, that's a classic time to stop-loss.

The above almost never happens with my stocks. Most news is already factored into the price, so breaking news has to be truly in the moment and devastating, or otherwise hugely impacting, for me to stray from my plan.

An example of strategy stop-loss would be a CEO giving notice of stepping down, or when mergers are announced. Again, these things almost never happen with our $100+ stocks, so stop-loss caused by the news is very uncommon with my system.

The most prevalent reason for strategy stop-loss is actually the easiest to follow. I've mentioned it before, and I'll box it up for emphasis this time.