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Days to Cover Explanation & What It Means for Short Squeezes

Tag: day trading

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Definition of Days to Cover

Days to cover is a formula which tracks the number of shares short in the market relative to the available float.  This allows a trader to see how bearish or bullish traders are on a security.  The last component of the ratio is the amount of daily volume. 

If you know the number of shares short and compare that to the average daily volume, you can estimate how long it would take for the short sellers to exit their positions.  This ratio gives a trader a rough estimate of how much buying pressure is present in the market for a security. It also gives an indication of potential liquidity traps, which can lead to huge short squeezes.

Formula for Days to Cover

The below formula displays how to calculate the days to cover ratio:

Days to Cover Formula
Days to Cover Formula

Where to find Short Interest Data

Short interest data is tracked daily by the major exchanges, but is only released bi-weekly to the public.  One of the best places to find the days to cover data is http://www.shortsqueeze.com/. The site has a simple tool that works like a ticker where you type in a symbol and it returns the days to cover information and a number of other ratios.  The beauty of this is you do not have to go to multiple websites to get the days to cover information from each exchange.

Many brokers will also share this information. For example, a free WeBull account shows the short interest and days to cover as a graph, like this:

Days to Cover and short interest from WeBull
Days to Cover and short interest from WeBull

This chart shows the days to cover on the left, and the actual number of shares short on the right. This, of course, is only updated twice per month. For that reason, it’s best to consult a chart and consider more recent volume and price action.

How to trade with Days to Cover info

The days to cover does provide some insight into the relative strength of a potential short squeeze. 

Stocks that have double digit days to cover ratios are often prime targets for speculators.  But, traders have to realize that every stock that has been beaten appears ready for a bounce.  To simply look at the days to cover ratio and buy the stocks with the highest number is a recipe for disaster. 

Traders have to not only look at the ratio, but also the technical formation which precedes your entry.  If you see climatic volume and a sharp price reversal, odds are you may have a good entry.

Short Interest Table

Below is a historical short interest table for Federal Home Loan Mortgage Corporation (FNM).  Notice how the stock had a days to cover value of 9.21 at the end of May which ultimately led to a swift sell off.

Days to Cover Table
Days to Cover Table

AMC Short Squeeze Example

Short squeezes are more likely to occur on small cap stocks than large caps. That doesn’t mean that large caps are immune to short squeezes, it is just that large caps need significantly higher pressure to squeeze the float (number of outstanding shares).

That being said, AMC was one of the more famous short squeezes recently, along with GME and SPRT. Let’s walk through a short squeeze example where AMC rapidly shifted from a bearish to bullish sentiment.

AMC short squeeze
Short Squeeze

This is the daily chart of AMC in 2021. Now have a look at the historical short volume in AMC for early 2021:

AMC short interest
AMC short interest

If the print is too small, the spikes in February and March coincide with around 100+ million shares short. Compare this with the corresponding spikes on the price chart shared above. Here is a nice overlay view:

Overlay of short volume and AMC chart
Overlay of short volume and AMC chart

Now, if you consider that AMC has around 450m shares in the float, the compounding effect of 100s of millions of shares short can add up quickly. If price never recedes to allow these shorts the ability to cover over time at lower prices, the effect can be devastating.

Assuming that there were a couple hundred million shares short before the squeeze, the average daily volume before that period was around 40 million shares. Using our formula above, that gives us about 5 days to cover. Sure enough the upward momentum of the squeeze lasted about 6 days total.

Granted, all of this has to be pieced together unless you have access to real-time shorting data.

And from the results above, you can see that there were plenty of shorts to fuel the demand behind the squeeze from $10 to $70.

SPRT Short Squeeze Example

SPRT was another fantastic example of a short squeeze with high days to cover in 2021. Notice that the Days to Cover reached about 8 days back in May of 2021, while short interest was steadily climbing upwards of 3m shares or more.

SPRT days to cover and short interest data from WeBull
SPRT days to cover and short interest data from WeBull

As the short interest rose, at one point it reached at least 78% of the float according to research done by Benzinga at the time.

Benzinga.com article excerpt
Benzinga.com article excerpt

As you can imagine, the stock was poised for a short squeeze. However, we need to see the chart to really time our entries. Let’s go back and look at SPRT from this time period:

SPRT with high days to cover and huge short interest
SPRT with high days to cover and huge short interest

Compare this chart of SPRT with the AMC chart above. Notice how we get a huge volume increase, then liquidity dries up considerably. This is a big indicator of whether or not a stock with a high short interest has “time” enough to let shorts out of their positions without exponentially moving the price of the stock.

As price rises, you’ll often see the shorts “averaging up” with daily candles that appear to be huge selloffs. But if the watermark gets too high, the shorts are stuck and forced to liquidate.

Finding Short Squeeze Candidates Using the Liquidity Trap Concept

We’ve written extensively on this topic in another post, but we thought it worth mentioning here that some short squeezes don’t take as long to “build”. There are times when low float stocks ramp up on huge volume, sell off, then squeeze right back up in a matter of days.

Take a look at these few examples and see if you can piece together the liquidity trap and sudden increase in days to cover — without actually having seen any days to cover fundamental data.

WHLM Liquidity Trap
WHLM liquidity trap in 3-4 days
KPLT shorts get stuck the first day as days to cover increases
KPLT liquidity trap

Hopefully you can see the concept. A great way to search for these is to scan for stocks that gap up on heavy volume and low float. Keep them on watch in the days after to see if volume recedes, then picks up again.

Other Ways to Find Stocks Ready to Pop

Short squeezes are difficult to identify by simply looking at a stock chart.

You can always analyze the short interest of a stock and the days to cover; however, you will never be sure when a short squeeze will occur.

For this reason, you can look to technical indicators to confirm potential short squeezes.

Oversold (Overbought) Indicators

Identifying technical indicators with reliable oversold readings is the most useful tool for identifying short squeezes. Oscillators are a great type of leading indicator as they provide oversold readings right before the positive price action.

Some indicators which provide oversold readings are:

  • Stochastic Oscillator
  • Relative Strength Index (RSI)
  • Commodity Channel Index (CCI)
  • Rate of Change (RoC)

Short Squeeze Trading with the Stochastic Oscillator

The stochastic oscillator consists of two lines which are floating in and out of an upper, mid, and lower area.

When the two lines enter the oversold area, we have a potential buy signal. A long trade can be opened when the two stochastic lines cross and exit the oversold area.

Since we are trading a short squeeze, we need to attain oversold signals from the stochastic. Let’s see how the stochastic could have been applied in these two short term squeeze examples:

Short Squeeze and Stochastics
Short Squeeze and Stochastics

Notice that during the period when the short interest was increasing, the stochastic lines cross downwards and exited the overbought area.

After entering an oversold condition, the two lines began to trend upwards.

Three days later, we get a bullish explosion of 16.4% for one day and a further expansion to 20%.

Let’s now apply the stochastic to the other example:

Short Squeeze and Stochastics 2
Short Squeeze and Stochastics 2

Again, we have the stochastic oscillator at the bottom of the chart.

While the short interest was increasing, the stochastic lines were also decreasing.

Then the two lines entered the oversold area. After tracking the price action for a few days, once the lines exited the oversold area, we bought MN.

Two days later a short squeeze ensued. MN experienced a strong bullish move where the price increasing 21% in two days.

Short Squeeze Trade Management

Trying to time a short squeeze will be one of the most challenging jobs you find in the market.

The reality is that stocks often have a high short interest because they are crappy companies and the stock price is likely to go lower before making a run.

Think about it, you are in essence trying to catch a falling knife in the hopes of catching the pop.

As we have said many times, in equity trading, you will never be right 100% of the time. We have also shown you profitable trading strategies with only 20% success rate. Short squeeze trading should really be no different than your normal trading. There needs to be a setup there technically, despite the underlying days to cover and short interest fundamentals.

Short squeeze trading can be profitable as the moves are so violent to the upside and there is no limit on how far the stock can run.

Stop Loss

The one good thing about trading short squeezes is that you can keep tight stops.

When you enter a trade on a potential short squeeze, you should put your stop below an area of support. Always keep in mind your risk to reward when setting a stop.

Target

This is the tricky part.

Your targets on short squeezed stocks will be somewhat extended. Did you notice that in the two examples above we had a 20% price increase for both? Not to mention that AMC and SPRT more than tripled!

In most of cases a successful short squeeze will lead to a price increase above 15% on small cap stocks, minimum.

However, what are we going to use as a signal in order to exit the market?

The stochastic oscillator will do the heavy lifting when determining your exit.

Simply stay in your long trades until the stochastic enters the overbought area. Do not wait for a line crossover in a bearish direction. Just wait for the lines to enter the upper area and to close one period.

Otherwise, hold for potential climactic action on the daily chart.

Doing the Math

Let’s say you invest $1,000 in each of your short squeeze trades. At the same time, your system has only a 10% success rate. You risk 0.5% in each of your trades. We will take a minimum target of 10% for our trades.

Below is a breakdown of the math:

  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)
  • $1,000 x 0.5% = $5 (loss)

= 9 x 5 = $45 loss from 9 trades in a row.

  • $1,000 x 10% = $100 (profit)

So, with 10% success rate and a relatively low target of 15%, we are likely to generate:

100 – 45 = $55 profit per 10 trades.

Please note you have to be ok losing 9 trades in row.

End to End View of a Short Squeeze Trading Strategy

Let’s now wrap up all rules of the short squeeze trading strategy in one example:

Short Squeeze Trading Example
Short Squeeze Trading Example

This is the daily chart of Era Group. The image shows a short squeeze scenario.

Era Group is in a selloff leading into the end of February. At the same time, the Nasdaq is reporting 6 days to cover.

The green circle on the chart shows the long signal we receive from the stochastics.

We immediately enter a long trade at $6.97 per share and we place a stop a bit below this point, since it is the lowest on the chart. Our stop is at $6.94 per share which is 0.43% below the entry price.

The price starts increasing rapidly right from the moment we entered the market.

The first candle during our log trade is huge. At the same time, the stochastic is increasing as well. Three periods (days) after we entered our trade, both stochastic lines cross into the overbought area. This is our closing signal and we exit our trade.

We were able to catch a 51% increase on this trade – unbelievable!

So, investing $1,000 in this trade we would have generated profit equal to $501, while risking $4.3. The trade lasted for three days. The risk to return ratio of this trade is huge!

Please remember, these cases are extremely rare!

Conclusion

  • The days to cover is a ratio which displays how many days short sellers need to cover their positions.
  • Days to cover is calculated by dividing the current short interest / average daily volume.
  • Days to cover helps determine if a stock is a likely short squeeze candidate.
  • We have a short squeeze when short sellers cover their trades and create extra buying pressure.
  • Short squeezes can lead to huge price jumps.
  • An oscillator could be helpful when looking for short squeezes.
  • When you trade short squeezes you will usually have 10% – 20% success rate.
  • When you trade short squeezes, you can aim for increases around 15%.
  • You will usually risk about 0.5% of your investment per trade.
  • Sometimes, anomalies could occur, where the price increases significantly as illustrated above; however, these cases are extremely rare.

Karan Khanna’s Background

We’re always looking for traders who exhibit consistency and an inspiring story to tell. Karan Khanna certainly fits that mold. From his early days in Toronto trying to start an Instacart rival while in college, to piling on debt and having to couch surf the US with friends, then finally resting in Brooklyn, Karan has a colorful story in his twenties. Thankfully, he found a great job, and a niche as a trader in 2020.

Karan shares with us the details of his journey and how he started studying trading in 2017, thanks to Tim Sykes’s website. After 3 years of study, he started trading seriously in 2020. Although he suffered quite a few setbacks in the beginning, his years of backtesting and fear of taking losses kept him grounded.

By 2021, Karan has grown his account from $800 to almost $300k. Don’t believe it? You can check it on his Kinfo profile:

Karan Khanna's Kinfo Profile as of 12/28/2021
Karan’s Kinfo Profile as of 12/28/2021

Karan Khanna’s Style of Trading

Karan actually employs a long and short style of trading. Primarily, he says, he is a short seller. He picks his trades based on the daily chart and likes to see really overextended charts that he can short. If he is early, he cuts his losses very quickly.

In essences, he is willing to take many cuts before the “big trade” sets up, which usually more than pays for those small cuts. As you can see, his win percentage is only around 43%, so he isn’t really concerned with his paper cuts.

SimCast Ep. 12 Chapters and Topics

  • Intro
  • Karan’s Start – 1:15
  • Couchsurfing – 4:50
  • 2020 – 8:13
  • Karan’s A+ – 14:40
  • SPRT – 22:15
  • Backtesting – 37:30
  • LGVN – 42:00
  • Sizing & Risk – 46:00
  • Outro – 52:52
Pattern Day Trading Rule Banner

Ugh, the pattern day trading rule! The name causes some discomfort to many traders. But then, rules are meant to be broken right? In the world of retail trading in stocks, this rule is hard to avoid. However, there are solutions. We’ll walk you through the ins and outs of the PDT rule in this article.

The PDT Issue

If you trade too much, chances are that your account will be flagged as a pattern day trader or “PDT”.

When your account is identified as one, the restrictions kick in. Many traders find it frustrating when the regulations kick in. Some immediately blame their brokerage. But this is a regulation put down by FINRA and the SEC.

Sometimes, trading opportunities are dime a dozen. The average trader obviously ends up ignoring the rules only to regret them later after their account is frozen from taking too many trades. Therefore, it is understandable why one would get frustrated with the pattern day trading rule restriction.

The Pattern Day Trading Rule Prevents You From Trading

Ironically, the pattern day trading rule was developed keeping a trader’s “best interest in mind.”

We’ve written extensively about the habit of new traders to “overtrade.” Well, the PDT rule is a way to force you to think more about the trades you’re taking. But is it really necessary?

Think about it for a moment. What if you were told that you could not day trade for 90 days? What if you were told that you need to top up your account before you could trade?

That would make you furious, wouldn’t it?

After all, traders, and especially those who trade on margin, prefer to keep just the right amount in their accounts and trade on leverage.

Why would you want to keep excess funds in your brokerage account when it can earn interest elsewhere?

Welcome to the world of the pattern day trading rule, which is one of the biggest obstacles traders struggle within the United States.

Definition of a pattern day trader

The legal definition of a pattern day trader is one who executes four or more day trades in five consecutive business days. This is applicable when you trade a margin account. When a trader is classified or flagged as a pattern day trader, they attract a 90-day freeze on the account.

Traders need to maintain a minimum balance of $25,000 on their account at all times when using a margin account.

The criterion for pattern day trading varies. There are some exceptions. For example, long and short positions kept open overnight but sold prior to the new purchases of the same security on the next day are exempt.

The pattern day trading rule severely limits participation in the market and also affects liquidity. This also leads to an increase in risk on the trader’s side.

Given the fact that most traders start out with smaller capital, it can be devastating to their trading journey.

History of the PDT rule

The pattern day trading rule came into effect in 2001, right after the collapse of the dot com bubble. In the run-up to the bubble, many traders categorized themselves as a day trader. Staying long in the market, traders eventually got margin calls when they were caught on the wrong side of the market correction.

As a result, the Securities and Exchange Commission (SEC) and the FINRA were led to enact the Pattern Day Trading Rule. This is also known as Rule 2520.

The goal was to prevent traders from being too over-leveraged and to maintain a considerable amount of funds to protect themselves from margin calls.

So, to summarize, if you don’t maintain a minimum balance of $25,000 in your margin trading account, you cannot trade more than three times in five consecutive trading days.

Drawbacks of being a Pattern day trader

Note that the pattern day trading rule applies only to margin accounts. A margin account is one which allows traders to trade on margin or leverage their capital. In other words, these are borrowed funds.

For example, if you had $50,000 in your margin account, you could trade two or four times this capital. This, in essence, increases your capability to $100,000 or even $200,000. It also allows you to continue trading each day while your funds are “settling.”

In all fairness, it is easy to see why the pattern day trading rule was formed. There is a big risk when trading on leverage and the PDT rule helps to keep you grounded.

If you trade with a normal unleveraged account, a cash account, the PDT rule does not apply because you are not borrowing funds in the first place.

But at the same time, this also limits your ability to day trade. In this account type, you, of course, avoid margin fees but it takes three days for trades to settle.

This can be a long wait. You also cannot short sell stocks, which you can in a margin account. Lastly, your buying power directly relates to how much cash you have in your account.

But there are some inherent drawbacks to being a pattern day trader too. Here are some of them.

Pattern Day Trading Rule Minimum balance requirement

When you are classified as a pattern day trader, you need to maintain a minimum balance of $25,000. This amount has to be maintained at all times. It is this criterion that the SEC uses to determine you as a trader.

In the event that your balance falls below $25,000 you would be asked to either replenish your account or the regulations kick in; even if it means that your balance declines by a dollar.

The minimum balance requirement can be a deterrent for many traders. Most day traders prefer to trade on margin. They make use of leverage to their advantage.

This means that traders don’t have to keep all their funds with their broker. They could easily use the funds toward other investments. But this is a misconception.

According to the Securities Investor Protection Corporation (SIPC), your securities account is protected up to $500,000 with a cash claim of up to $200,000.

When a trader is flagged as a pattern day trader, they are forced to maintain the minimum balance.

The label of being a pattern day trader with your brokerage

It is important to note that you are classified a pattern day trader based on your execution of trades; the trades that you buy and sell during a business day.

The rule leads many traders to avoid being classified as one. Traders, therefore, end up holding their positions overnight or over a period of days.

This can be risky especially when there is a big move in the after or pre-market trading sessions.

Restrictions on trading

The moment your trading account is flagged as a pattern day trader, your ability to trade is restricted. Unless you bring your account balance to $25,000 you will not be able to trade for 90 days.

Some brokers can reset your account but again this is an option you can’t use all the time.

What happens when you are flagged as a PDT?

This is a common and an obvious question that comes to mind. What happens when you are flagged as a pattern day trader and when your balance falls below the $25,000 requirement?

Well, you will have the following options.

You can either top up your balance to bridge the gap and make your balance to meet the minimum requirements.

In some cases, you will have to wait for a 90-day period before you can initiate any new positions. That’s about a three month wait before you can trade again.

Depending on the broker you are with, you can also ask for a pattern day trader or a PDT reset.

When the balance falls below $25,000 you will be prohibited from initiating any new positions almost immediately. You will have to close out any existing positions in order to revive your account back to the minimum balance requirement.

A pattern day trading reset (or PDT reset) is, of course, the best course of action. FINRA allows brokerage firms to remove the PDT flat from a customer’s account once every 180 days. When the PDT flag is removed, you can place about three trades every five business days.

How to Avoid the Pattern Day Trading Rule

It’s a common annoyance for a day trader to have pattern day trader status.  However, there are some actions that day traders can take to remove pattern day trading rule status. Here are some common ways to avoid that label.

1. Open a cash account

If a day trader wants to avoid pattern day trader status, they can open cash accounts.  They can make unlimited day trades with smaller amounts of money. While you can make unlimited trades, there is a downside.

The Securities and Exchange Commission rules state that cash profits from a transaction must settle before traders can receive the cash. That means that traders can’t use the cash until two days after the settlement date.

For example, a trader has $20,000 in their account and makes a day trade using $5,000 from the cash account. They can trade with $15,000 for the next two days.  Brandon Herman, Senior Manager of Margins and Clearing at TD Ameritrade, explained the settlement rules here: 

“In a cash account, if you buy and you sell, you have to wait for that sale to settle before you can use the funds again. Some clients may find it worthwhile to use a margin account every now and then to be able to buy what they want to buy, when they want to buy it, and borrow with margin for a short period of time,” said Herman. 

If day traders want to trade a small amount of money and are patient, cash accounts can be an option to avoid PDT status.

2. Use multiple brokerage accounts to avoid the PDT Rule

If trading three times a week is too limiting for day traders, having more than one brokerage account may be another option. When a day trader opens multiple brokerage acccounts, they can have an additional three trades for every five days. Because many brokerages have commission-free trading, this can be a viable option to avoid PDT restrictions.

While opening multiple accounts is one way to avoid PDT status, day traders should be cautious. Having too many accounts open may spread a day trader’s funds really thin.  If a day trader has funds below $25,000 in their account, their funds may get depleted quickly. 

Another downside is keeping track of the profits and losses in multiple trading accounts.  A Google doc or Excel spreadsheet can help day traders keep track of their multiple accounts. 

3. Have an offshore account

If U.S. brokerage accounts are too restrictive, then offshore brokerage accounts are another option. Day traders can open offshore accounts and trade more often with fewer restrictions.

If a day trader opens an offshore account, they should be cautious. The rules that govern U.S. investors may not apply. The protections offered to investors may not be present, either. There may extra fees to open these accounts as well. 

4. Trade Forex and Futures to avoid the PDT Rule

In addition to having an offshore account, day traders can avoid the PDT Rule by trading foreign currency or futures. Neither of these asset classes require a certain level of cash. In fact, you can open an account with many brokers for just a few thousand dollars.

Some things to watch out for are the massive amounts of leverage inherent with trading these accounts. You’ll need to be disciplined to understand how to trade Forex and Crypto. 

5. Options trading

Options trading is another choice to avoid PDT restrictions. James Schultz, an options trading expert, spoke here about options trading.

Schultz explained how he started trading options.

“The simple fact that the only unknown variable in the model, the implied volatility, was consistently higher than the realized volatility that actually unfolded in the market left me convinced that there was an opportunity in trading options, ” said Schultz.

Schultz explained how day traders can start trading options.

“Start very small and focus exclusively on defined-risk strategies, until you’re comfortable with how the market moves and your options positions bounce around,” said Schultz.

“While a virtual, “paper” money account is useful for learning the mechanics, it cannot and does not simulate the actual emotions that are felt with real, live trading. So, even if it’s only a small amount of money, start with small trades in a real money account, as soon as you can,” added Schultz.

Offshore Brokers with no PDT restrictions

Now to the best part! There is at least one reputable broker we’re aware of, possibly two, through which you can avoid being labeled a pattern day trader.

But you might already guess that this is an offshore brokerage. The offshore jurisdiction gives these brokers more flexibility. This means such brokers can also avoid having to follow the FINRA rules.

But if something goes wrong, chances are that you do not get the same level of assurance as a trader trading with a U.S. registered brokerage. You are also liable to pay higher commissions. But this is a trade-off considering that you want to avoid the pattern day trading rules.

Here are some of the brokers that have no pattern day trading rule restrictions. They also allow you to trade on margin.

Capital Markets Elite Group (CMEG)

CMEG is based out of Trinidad, though their banking is done through an Australian bank. One of our staff members has actually used this service and can recommend it.

Although they allow you to open an account with as little as $500 on their active trading service, margin goes all the way up to 6:1 around $2500.

In our experience, the service was very reliable, with order executions lightning fast. The only thing we would complain about are commissions. With a small account, commissions and fees can add up really fast. So can network fees, wiring fees, and platform fees. Just be aware of this.

One positive of CMEG is that they do have access to hard to borrow stocks. So, if you’re a short seller, this may be of interest to you. Regardless, it will like you cost you about $300+ just to get started with either the DAS or Sterling trading platforms, along with wiring fees, etc.

AllianceTrader

AllianceTrader is the brand name for Alliance Investment Management limited. It offers online equity trading service and the company is domiciled in Jamaica. The company is licensed by the Financial Services Commission of Jamaica under the securities Act of 1993.

For the record, we have not tried this service, nor do we know if it is real. We did try to call them, but got a voicemail for MagicJack.

According to their website, AllianceTrader allows you open an account for as little as $1000 for a cash account or $2000 for a margin account. You get a leverage of 4:1 on your margin account. This means that if you deposit $2000 in a margin account, your leverage goes up to $8000.

Of course, the leverage falls to 2:1 if you keep positions open overnight.

The brokerage claims to have no annual fee and no trade restrictions on intraday securities buying and selling.

There is an intuitive trading platform that allows you to place multiple stop orders and advancing charting techniques. You can either download the trading platform or use the web-based version.

If you are interested, you can get a two-week demo as well to test drive the trading platform.

TradeZero

TradeZero is another broker that circumvents the pattern day trading rule. The company is domiciled in the Bahamas. However, note that the brokerage does not allow accounts from U.S. citizens. This is a bit disappointing considering that you can open a margin trading account for as little as $500.

They also offer higher leverage of up to 6:1 when you deposit $2,500 or more. Limit orders are offered free of cost and regular market orders come at a certain fee.

TradeZero offers its own proprietary trading platform that can be downloaded or accessed via the web. Other versions include dedicated smartphone apps as well.

There is also a free demo version for you to test drive their platform.

SureTrader

Suretrader used to be another option for brokerage from the Bahamas. We mention it because it is still talked about in forums. They are closed down now, however.

Margin account or cash account or offshore account?

In conclusion, you can see that there are basically three choices available for you as a trader. Each of the accounts has its own pros and cons.

A margin account as you know gives you the option to leverage your trades by trading on margin. However, if you trade too much or if your balance falls below the $25,000 threshold you end up being marked as a pattern day trader.

This could potentially restrict you from trading by up to 90 days.

On the other hand, a cash account clears you of the PDT restrictions. However, your buying power is vastly restricted to the amount of capital you have. While there are some advantages you will be limited unless you have a huge capital to trade with.

Finally, you can choose an offshore brokerage that can allow you to circumvent the pattern day trader rule restriction. While this seems like a good compromise, remember that there are some risks.

Because the brokerages are offshore, the FINRA or SEC rules do not apply. This means that in the event the brokerage goes bust, it would be difficult to get your money.

While the odds of this happening are little, there is always this risk that you need to bear in mind.

To summarize, many traders do not like the pattern day trader rule. However, remember that the rule came into effect following the dot com bubble burst. Trading on margin is always risky, which is why the rules such as pattern day trader have been implemented.

If you’ve ever traded in stocks or crypto, you’ve more than likely heard the term “bag holder.” Veterans in the market understand the term very well, for reasons we’ll point out in this post. So, if you are just starting out in trading, please take the time to read through this. It may save you a lot of money and a lot of heartache.

What does the term bag holder actually mean?

Being a bag holder is pretty straight forward. It is essentially a term for someone who is left holding the “bags” after someone else has run off with the money.

Rolls off the Tongue, LEFT HOLDING THE BAG Origin: By Andyman1943 www.toondoo.com
www.toondoo.com

In the world of stock trading, more often than not, this is the retail investor. Retail investors come to the market with little knowledge of how the market works or how it is designed to take advantage of them — over and over again.

Obviously, the modus operandi of influential and well-funded market participants is to generate demand for their products, i.e. certain stocks. We call them market makers. After all, it is their job to work for companies or institutions who’ve acquired a certain amount of shares and need to make a profit off those shares.

Why bag holders are needed in the market

In order to turn a profit, market makers need someone to sell to. It’s no different than any other marketable product. Buy up all the “widgets” at a wholesale price and store them in a warehouse. Create demand for the widgets, mark up the price, and soon everyone will be wanting your widgets.

As word gets out, like the recent AMC buying frenzy, everyone and their neighbor believes they are going to get rich by buying widgets and selling them when they reach $1000.

After all, that’s the story that all the online promoters and influencers have sold to you right? All it takes is a little fervor in the storyline, and an army full of sheep to believe it, and the market makers have the perfect exit.

Little do they know that there is no other way for market makers to get rid of all those widgets in the warehouse at once. They need a sea of buyers. And as the price rises and rises quickly, they take advantage of the demand to dump all the widgets into unassuming retail buyer’s hands.

Hence, they leave with the money, and you’re left as a the widget bag holder.

Example 1 of a bag holder

Let’s use the AMC example mentioned above in order to gain a perspective of what bag holding looks like on a chart.

AMC buyers left holding the bag.
AMC buyers left holding the bag.

Notice on the chart that the stock price more than tripled in a matter of a few days. As the stock continues to rise, it creates a sense of “fomo“. Every one is calling their mother and grandmother and 2nd cousin, Bill, and telling them to buy AMC because it is going to the moon.

The talking heads on CNBC and Reddit and Twitter and everywhere else are all fueling the fire. In essence, the fomo meter is completely maxed out. Get in now, or you’re going to miss out!

Stock Market Fomo Meter

So you hesitate, you buy late, and then you HODL (Hang On for Dear Life) hoping you’re going to get rich when AMC goes to the moon.

Unfortunately, as you’re buying, the market makers are cashing in all those pretty little AMC shares that they accumulated at a much lower price. Your FOMO is their exit strategy.

The result, whatever you invested was cut in half as the price dropped 60% from the highs.

How to use bag holding to your advantage

Now that we’ve painted such a grim and menacing picture of bag holding, let’s look at a simple trick. This trick will allow you to use bag holding to your advantage.

The concept of bag holding actually centers around volume weighted average price. We’ve got plenty written on it.

Suffice it to say, a volume weighted average price will tell you at what price “most” of the market participants are “averaged” into the stock. This gives you an indication of the “over/under” for who is holding the bags.

To that point, when a stock is in a sideways trading range, it’s likely that the bag holder hasn’t been determined yet. If a stock is breaking down from a consolidation at the highs, longs are probably holding the bags. And vice, versa.

Let’s look at an example.

Using VWAP Boulevard and Anchored VWAP to find bag holders

There are two indicators we really like when trying to find the bag holders in a stock: vwap boulevard and anchored vwap.

We’ve written extensively on them, so be sure to check out those articles linked above.

Now, let’s look at our AMC example again, but this time with VWAP Boulevard indicators turned on.

VWAP Boulevard can help you find bag holders
VWAP Boulevard can help you find bag holders

Notice in the chart above that there are 5 lines. Most of them are pastel pink and purple. However, the one we have annotated as VWAP BLVD #1 is black. This is the most important vwap boulevard line. It represents the closing vwap of the highest volume day on the chart.

Volume is king in trading. It gives you so much information as to supply and demand and big events in the market.

In this example, notice how the price of AMC fumbled around that vwap boulevard line for many days following the climactic push. This is your over under line. As price begins to break down from that point, it becomes clear that buyers are the bag holder. This is your signal to get out and cut your losses quickly.

Consequently, the price later found some support at a lower vwap boulevard line, VWAP BLVD Line #3, but only after a massive decline in price. So, as you can see, these lines are always worth a look when analyzing price charts.

Using Anchored VWAP to find bag holders

In the same chart below, we’ve now added a red anchored vwap from the highest volume day on the chart. Notice how it acts similarly to the vwap boulevard line we have drawn.

Anchored vwap helps find bag holders
Anchored vwap helps find bag holders

This can be another tool in your belt when trying to find the over/under line for bag holders. Once they start sinking, buyers are now under water.

What happens when someone holds the bags when they are shorting stocks?

Bag holding doesn’t have to be just for buyers. You can have sellers holding the bags as well. In fact, if you are a buyer of stocks, you probably want sellers to be the bag holder. This is the thesis behind all of the short squeezes that have been so popular lately.

Essentially, just like the AMC example above, when short sellers pile into a stock, they expect it to go down. However, if there is enough demand present, the sellers can quickly become overwhelmed as the stock price continues to rise.

Unfortunately, this can lead to catastrophic losses for short sellers, but exponential gains for buyers. Check our recent podcast for an example of how a short squeeze can blow your account.

Let’s look at an example of what this might look like with a quick examination of liquidity traps.

Liquidity traps create short seller bag holders

To trap shorts, you first want to create a high volume day and give shorts the upper hand by the end of the day. Notice HLBZ below has done just that.

HLBZ gap day
HLBZ gap day

Then, you want liquidity to dry up in the ensuing days, while maintaining price at key levels. This creates a predicament for short sellers. How? You might ask?

If you’re going to take a strong short selling position, you need plenty of time and lower prices in order to get out of your position and take profits. If price is kept high enough, and no more selling pressure comes in, this could spell Barney Rubble (trouble) for shorts.

Notice how in the next image, the second day, volume completely dried up:

HLBZ day before liquidity trap
HLBZ day before liquidity trap

And then the next day, it was carnage for short sellers. Some news created a catalyst for longs to come in, and shorts began to cover as quickly as possible, fueling a squeeze.

HLBZ Liquidity Trap
HLBZ Liquidity Trap

You might be asking, but how did you know the over/under line for shorts to become bag holders? This goes back to vwap boulevard again. Let’s look at this example with vwap boulevard drawn on the highest volume day in JFIN.

JFIN liquidity trap
JFIN liquidity trap

Note the wick on the first high volume candle. Lots of selling pressure. Then price holds vwap boulevard as volume dries up the next day. Price begins to rise on the third day, and shorts are soon under water.

How to avoid becoming a bag holder

Honestly, it’s a matter of education and discipline. If you don’t understand market dynamics and technical analysis, you’re going to have a hard time making money. Unless, of course, you get lucky. But, luck runs out some times.

The great investor Bill O’Neil taught that you should buy stocks in an uptrend that have paused and then resume their uptrend. This gives you a great opportunity to buy something that is strong. Buying high and selling higher seems counterintuitive, but it’s a lot better than being a bag holder.

Think about it this way, if a stock is showing weakness and beginning to break down, like AMC above, how do you know it will eventually rally? Why not keep your eye on the over/under and save your cash by selling for a small loss. The longer you hold a loser, the more your hard-earned cash depletes.

Follow these guidelines to avoid being a bag holder:

Conclusion

Here at TradingSim, we believe the fastest way to consistent profitability is through trading replay and simulation. By all means, study study study all the gurus you want, but put their strategies to practice in a trading simulator first.

If you don’t want to take our word for it, take it from the worlds most renowned trading psychologist, Dr. Brett Steenbarger.

Here’s to good fills!

Alex Salfetnikov’s Story

Wow. This is one of the most heartbreaking, yet encouraging SimCast’s we’ve done. In this episode, Alex Salfetnikov gives us full disclosure on the biggest loss of his career, plus takes us through the trades and the misfortune of that day. But, the best part is how he’s slowly made his way back.

Alex Salfetnikov Twitter

Alex is a young, successful trader who suffered a debilitating blow up on November 6, 2020. After reaching the half a million mark in his account (from only $5k), he suffered a nasty after hours squeeze while holding overnight shorts. He shares with us his lessons on risk management and strategy, and how he bounced back.

You don’t want to miss this story, as it gives a great picture of what it’s like to go all in and grow your account, only to have a huge setback. But the cool part of this story is the resilience, as Alex shares his determination to bounce back, and the discipline and techniques he’s used to do just that!

SimCast Ep. 11 Chapters and Topics

  • Intro + Background
  • Early Blowups – 3:40
  • Backtesting – 11:50    
  • 2019 Trades – 16:40
  • The Blowup – 31:55
  • Bouncing Back – 43:50
  • 2021 Trades – 51:20
  • 1 Year Later – 1:05:50
  • Outro – 1:11:00

Finding Alex Online

Be sure to reach out to Alex on Twitter: @alexsalfetnikov

Alex is always sharing great trade recaps. Also, he has his own trading room, if you’re interested in learning more about his style!

Daytrading Breakouts Banner

Are you a day trader? If yes, then you will definitely find this article helpful as you begin to navigate the world of day trading breakouts.

Today we are going to discuss 4 strategies for how to trade intra-day breakouts. But, before we jump into the meat of the article, let’s first align on the definition of breakouts and some of their key characteristics in this short video.

What are Breakouts?

A breakout occurs when price clears a key level on your chart.

These levels could be a trend line, support, resistance, a prior high, or a key Fibonacci level. Remember, levels on your chart are psychological and represent the sentiments of day traders at a respective price level.

When you think of day trading breakouts, what comes to mind?  Stocks making daily highs, two-day highs, weekly highs, all-time highs?  As you see, breakout means a lot of things to a lot of people.

So, why do so many people lose money day trading? Why are traders constantly buying stocks when they hit intra-day highs, only to have them roll over within minutes. How many times have you shorted a stock on a breakdown through a critical support level, go get coffee, come back and see the stock has bounced and you just bought a five-thousand dollar no foam, soy latte?

Well, in this article we’ll give you the “secret” that so many breakout day trading professionals use every day to take themselves from ordinary to extraordinary.

Day Trading Breakouts Misconceptions

If you buy a breakout or sell a breakdown, you’ll make money, right?

Do you believe this statement? If so, immediately contact your broker, withdraw your funds and put them in a savings account.

If you follow this system, you will lose money. [1] Often times, professional floor traders and the like will wait for stocks to break new lows, look for large buy orders in the tape, and then start scooping up every share in sight.

This will leave you, the novice trader, looking at your screen scratching your head and asking yourself the question, how did this happen? My technical indicators were in alignment. The stock has been below its simple moving average the last 10 bars. The last 15 bars have been down, now when I put on my short position, the stock has the bounce of its life.

If you are ready to end your streak of tough trading days, continue reading.

Avoid Trading Breakouts During Lunch

In the morning, there is news, earnings, gossip, and a multitude of other reasons that cause stocks to move swiftly with heavy volume. Then around lunch, traders take a step back and begin to digest all of the events from the opening bell.

This does not mean there are no good breakouts in the market, but the odds of finding the stocks that will move are not in your favor. It’s a known fact on the street that lunchtime trading is for accumulating sizeable positions that you can then unload at some point in the future.

That is why, during the middle of the day, stocks go through an endless process of breaking out and failing, over and over again. This process is known as intraday accumulation. Think for a second, if you are attempting to accumulate 200,000 shares of a stock. Could you just run out there and put one large order in the market without anyone seeing you?

Maybe on a stock like Apple, but this is a much harder task in a stock that is not traded heavily.

Well, if the trading is light, You just put the trade on in the morning. Wrong.

When Momentum Stops

If you put the trade on after the morning gap, you can easily get caught up in the morning volatility and may not get the best price. However, if you wait until the afternoon, you can quietly accumulate shares, 10,000 or so each time you buy, without many noticing.

So, if you were doing this, would you want the stock to breakout? Of course not, this would mean you would have to pay more per share.

So, instead you keep things quiet and by 2 pm, you’ll have been able to acquire your 200,000 shares, over the last 3 hours, under the radar. If you are a smaller trader, why get trapped taking on positions during the accumulation period? 

Why put yourself through the emotional stress of watching your stock breakout and fail, over and over again? If you only remember one thing from this article, the middle of the day is for hedge funds and large institutions to build sizeable positions, not for you to day trade breakouts.

If you’re not convinced to avoid lunchtime trading, at least do yourself the favor of putting on no more than 2 trades per day. The trick about the midday breakouts is that you have to be extremely patient.

Example of a Midday Day Trading Breakout that Works

Below is an example of a midday breakout.

Midday Breakout

The one thing you will notice here is that the breakout took place right before 1:30pm. From about 11 am to 2 pm the stock drifted lower. If you were trading during this timeframe you would likely lose money and rack up more commissions. It was nothing but choppy action.

The real breakout finally brought an expansion in both price and volume around 12:30pm, with a second breakout at 1pm.

Now, what was the secret sauce that lets us know the breakout was real? Do you think the expansion in price was enough? Is it how high the stock is trading above its 200-day moving average? Nope.

It was the movement of the stock above the volatility contraction pattern. If you are day trading on the long side and have not studied volatility contraction patterns, volume dry up, and pocket pivots, then you do not know what you are missing.

Do you get a feel now for what it takes? You have to exercise extreme patience and wait for the right setups. It also helps to have a bigger picture idea. This LGVN was a classic example of a liquidity trap.

When to Make Money Day Trading Breakouts

The “secret” for day trading breakouts is knowing when to trade them.

There are typically only 2 to 3 hours per trading session you can day trade breakouts on an intraday basis. That’s right. If you are day trading breakouts, you only have about 2 hours a day where you can make money easily, quickly, and without much effort. This time frame is usually between 10am and 12pm, with some exceptions.

In addition, there are two indicators you ought to have on your chart. Those are Fibonacci (retracements and extensions) and pivot points.

These provide you the support and resistance levels for where to enter and exit trades.

The other key point, assuming you are not scalping, is that you should only look to place 1 to 4 trades per day. There is no need to over trade. If you play it right, the plays will more than pay for themselves.

What Times Work for Day Trading Breakouts

The optimum times to day trade breakouts by scalping is during the first 30 minutes and the last 30 minutes of the day. The volume during these time windows makes them ripe for entering and exiting trades. [2]

For smaller cap, bigger-picture ideas, 10am-12pm is usually best for a base to build, with a late morning breakout. These are usually squeezes in the smaller float stocks like the LGVN example above.

Most traders say stay away from the morning and late afternoon trading because it’s too volatile, right? Well, that is partially a true statement, if you just go out into the market putting on trades without any defined rules or systems in place. We like the 1 Minute ORB for trading off the open.

Identifying Winning Breakouts

  • Avoid stocks that have extreme volatility
    • Trading low float stocks looks really cool when you are watching YouTube videos of your latest start-up millionaire. However, trading them is a completely different story. We’re not saying there aren’t those crushing them on a daily basis – You just have to wait for a proper setup like the volatility contraction pattern. As stated by Peter Leeds, author of Penny Stocks for Dummies, “Rapid and sudden price spikes typically don’t last.” [3]
  • Do not fade gaps
    • Yes, gaps get filled. The question is, will it get filled in the timeframe you need it to. If you are day trading breakouts, you need things to happen quickly and precisely. You do not have time to wait around for the stock to act appropriately. Remember, it is always easier to go with the trend.
  • Avoid thinly traded stocks
    • If the stock has awful spreads, this will only eat into your profit margin. Also, when it comes time for you to exit the trade, you will likely get horrible pricing and have a tough time exiting your trade.
  • Only trade stocks that have a sizeable price range
    • Remember, the goal here is to day trade breakouts. The greater the recent trading range, the greater your odds are of being in a stock that has room to trend.

4 Explosive Strategies for Day Trading Breakouts

Now that we have covered the basics of breakouts, we are going to delve further into four breakout strategies you can use when day trading.

#1 – Day Trading Breakout + Volume Indicator

Again, traders use breakouts as a trigger for entering a stock. But, for how long?

Let’s explore a simple strategy where we leverage the volume indicator as our tool for assisting in trading breakouts.

Day Trading Breakouts with Volume
Day Trading Breakouts with Volume

Above is a 10-minute chart of AT&T.

The red line signifies the resistance level of a bearish trend. We have highlighted in the green circle the exact moment AT&T breaks out above the downtrend line.

At the same time, the volume with AT&T is increasing in a bullish direction. Thus, we go long with the breakout candle.

The next 5 candles are bullish, and volume is expanding on the up move. We hold our long until we get the first bearish volume bar with increased volume. This happens after 5 periods and we exit the position as shown in the red circle.

Just to clarify, for a proper exit signal, you want to see the volume increase relative to the last few candlesticks and the price to also go counter to the primary trend. This is an early indication that the impulsive move is in the process of at least slowing down, if not reversing.

This trade brought us a profit of 25 cents per share for less than an hour’s work. Notice that after we exit the market, the price starts consolidating and then drops significantly.

#2 – Day Trading Breakout + Volume Weighted Moving Average (VWMA)

Another way to analyze volumes with your breakout strategy is to include a VWMA.

Since breakouts occur only a few hours a day with high volume, the VWMA could also prove a valuable confirmation tool.

The reason for this is that during times of high volume, the VWMA will experience a deeper incline and further separate itself from the price.

Conversely, when the price trades closely to the VWMA after a breakout, this can be an early indication that the breakout is a false buy signal due to light volume.

The example below shows how to trade a breakout with the help of the VWMA:

Day Trading Breakouts with VWMA
Day Trading Breakouts with VWMA

This is the 10-minute chart of Bank of America. We use a 20-period VWMA. The red line indicates a bearish trend. The trend line is tested 5 times before Bank of America finally breaks out, which is highlighted in the green circle.

The price opens the next week with a gap through the trend line and the VWMA. This is when we go long.

Notice that when the volume is high, the VWMA creates a lot of distance between itself and the price action.  However, as the volume begins to dry up, the price hugs the VWMA tightly.

For this reason, the price is more likely to break the VWMA during lower volumes, as the bulls are not stepping in to fuel the next round of buying.

Once the price breaks the VWMA, we exit our long position as highlighted in red above. This position brought us a profit of 36 cents per share for few hours of work.

#3 – Scalping for Breakouts with a Short Period Exponential Moving Average

Since the EMA places a higher emphasis on the most recent price action, the EMA will trigger exit signals well before a trend terminates. While we may miss the lion share of the profits, this strategy allows us to make smaller, consistent gains.

Have a look at the following example, which shows how the EMA breakout scalping strategy works:

Breakouts + EMA
Breakouts + EMA

This is the 10-minute chart of Twitter. We use a 5-period EMA in order to catch the short-term price movements. We spot a triangle on the chart and we wait for a candle to close below this support line as an indication of a breakdown.

This happens in the green circle and we open a short position. Four large bearish candles occur after our entry, which is great for our pockets.

After this rapid drop, the price begins to hesitate and eventually breaks the 5-period EMA to the downside.  We get four big bearish candles afterward. After the rapid drop, the price starts hesitating and breaks the 5-period EMA in a bullish fashion, at which point we exit the trade. We were able to capture 51 cents of profit per share for under 90 minutes of work.

#4 – Day Trading Breakouts + Price Action Trading

There is another, very simple option when trading breakouts intraday. Sometimes the technical indicators and MAs are just too much. If you don’t like overly complicated charts and you want to keep things simple, you will love the breakout price action trading strategy. Price action trading is one of the most straightforward methods for active trading.

This is because you only need candlestick formations or support/resistance levels to make a trading decision.  No flashy indicators or awesome oscillators to fret about.

Again, do not use any indicators or moving averages! Let’s review an example, to further illustrate this point:

Price Action Trading
Price Action Trading

Above is a 10-minute chart of Facebook. After a bearish downtrend, the price develops into one of the most famous candlestick reversal patterns – the evening star.  The price then breaks out and creates a double bottom formation, where the second bottom was higher than the first.

We create a resistance line above the double bottom formation as our trigger for entering a long position.  Once price breaks this resistance level, we go long with our first target equal to double the size of the double bottom formation.

We also draw a trend line in green, which represents support for the up move. We stay in the market until our new trend line is broken, which is indicated by the red circle. This trade brought us a profit of $1.70 per share.

So, which strategy is the best for day trading?

We believe the key to breakout trading success is hidden in the volume present during the breakout.

Thus, we recommend a combination of the first and second strategies.

How to Manage the Trade When Things Go Wrong

No matter how good you are – you’ll lose 30% to 40% of the time. This losing percentage is the same for day trading breakouts. Even if you execute every setup listed in this article perfectly or if you take these ideas and build upon them. There is simply no way around it.

So, in order to manage the unavoidable, let’s dive into how things can go wrong and what you can do to address the matter.

#1 – Take Profits

One thing you’ll need to decide as a trader is how you will take profits. Now, if you are trading low volatility stocks you can hold your entire position until you get a sell signal.

If you are trading the high flyers, we recommend selling your position in thirds. When stocks are shooting higher, they will have moments where they surge and then retrace.

Therefore, enter your position on the breakout and then sell a third every time the stock pops.

If the stock does shoot up 10% or 20% in a matter of minutes, just go ahead and close the entire position. Realize you just made 20% in minutes – this is not normal.

So how is this helping you manage the trade when things go wrong? Well, by selling in thirds you are ensuring that you are walking away with some profits as the trade goes in your favor. Therefore, if there is a major reversal – you will walk away with something.

#2 – Money Management

This one is straightforward. If you are trading the high flying stocks that are printing 5% range bars – do not go in large! It is very hard to succeed at trading going large in volatile penny stocks.

Never use a large portion of your trading account. Depending on the size of your account, consider trading with only 5% to 10% of your total account value per trade.

Consistency and compounding are the key.

The point of this section is to tell you to not go into trades with 50% or 100% of your account value. If you use this strategy, at some point you will blow up your account.

#3 – Watch the Time

If breakouts are going to fail. one of the early signs things are going wrong is time. If the stock does not move quickly, in other words. Now, this doesn’t mean it’s a trap where price just crashes lower, which is a clear sign things are wrong.

What we’re talking about is the stock breaks out and then just hovers around the breakout level. You will find yourself sitting there and looking at your screen wondering what’s going on. Watch the price action and if the key breakout levels don’t hold, it could be a failed breakout.

Now you will need to determine based on your time frame how long a stock can hover around the breakout area before you realize things are off.

#4 Profit/Loss Ratio

For every trade you need to identify profit and risk levels. This is because you have to, at a minimum, risk the same amount of money you hope to make.

This way if you win more than you lose, you are sure to make money by the end of every month.

If you just enter trades without targets, you’ll either sell too soon or you will let things run too long and exit without. You may even let a winner turn into a loser.

Next, you need to make sure you really understand the risk of the loss. Don’t just look to the most recent low on the chart, but really understand the percentage you are risking on the trade.

If you keep the ratio in your favor on each and every trade, the only thing you need to do is focus on developing a winning strategy.

Conclusion

  • While our chart examples were of 10-minute intervals, the techniques will work on other timeframes such as 5-minute and hourly
  • Breakouts are one of the crucial aspects of day trading.
  • The setup can occur when the price goes through a crucial level – support, resistance, trend, channel, Fibonacci level, chart formation, etc.
  • Breakouts give clear entry points, but they do not provide clear exit points.
  • We use different on-chart tools in order to identify exit points when trading breakouts.
  • Avoid trading breakouts during lunch time.
  • Market volumes are crucial when trading breakouts.
  • Two of the best instruments to measure volume during breakouts are the volume indicator and the VWMA.
  • The EMA is another great tool for trading breakouts.
  • Breakouts + EMA create a strong price scalping strategy.
  • Breakouts can be traded with simple price action techniques without any indicators.

External References

  1. Day Trading Your Dollars at Risk. (2005). U.S. Securities and Exchange Commission
  2. Wigglesworth, Robin. (2018). The 30 Minutes that Have An Outsized Role in US Stock Trading. Financial Times
  3. Leeds, Peter. (2016). ‘Penny Stocks for Dummies‘. Wiley. p. 57