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Welcome to DayTrader Doctor – Your Prescription for Profitable Trades

Helping new day traders understand the basics.

The system is basic knowledge I've gathered from many sources.

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Learn these simple steps for Day Trading Success

Join me and learn the what, when, how and why of day trading.

Learn how to pick a couple stocks a day with the right catalyst to trade.

This is a easy way for beginners to learn a buying strategy.

Step # 1: Top 5 Stocks up from previous close at least 20% Gainers/Gappers

There are a few FREE youtubers that have live scanners every morning starting at 6:30 AM

Starts with checking High Gap Scanners at 6:50 AM Pre-Market on some Brokers websites ( I use Webull)

This gives you a chance to look up stocks and prepare for the 7:00 AM News Drop.

Gapping up in stocks refers to a situation where a stock’s price opens significantly higher than its previous closing price, creating a “gap” on the stock chart. This happens because the stock opens for trading at a much higher price than where it closed the day before, bypassing any prices in between.

Aspects of Gapping Up: Gap on the Chart: A gap is visually represented by a space between the previous day’s highest price and the current day’s opening price. There are no trades occurring within that price range, hence the term "gap."

Pre-Market Activity: Gaps typically occur when there is significant news or developments during after-hours or pre-market trading sessions, causing an imbalance of buyers at the open. By the time the market opens, demand for the stock may have increased significantly, causing it to open at a higher price.

Catalysts for Gapping Up: Positive News: Earnings beats, new product announcements, or partnerships often cause a stock to gap up as investors rush to buy.

Upgrades by Analysts: A major analyst issuing an upgrade or raising a stock’s price target can also spark buying interest and cause the stock to gap up.

Industry-Wide Events: Major news affecting an entire sector can cause multiple stocks within that industry to gap up.

Types of Gaps: Common Gap: These are small gaps that occur in low-volume stocks or due to regular market fluctuations and are often filled quickly (i.e., the stock retraces to its previous price levels).

Breakaway Gap: These occur when the stock breaks out of a range, often signaling the start of a new trend. Breakaway gaps tend to be larger and indicate strong momentum.

Runaway Gap (or Continuation Gap): This type of gap happens in the middle of a strong upward trend, signaling that the momentum is continuing.

Exhaustion Gap: This occurs near the end of a trend and may indicate that the trend is losing strength, leading to a possible reversal.

Why Does Gapping Up Matter?

Increased Buying Interest: A gap up signals strong interest from buyers, often due to positive developments. Traders and investors see it as a sign of strength.

Volatility and Momentum: Stocks that gap up tend to be more volatile during the trading session, making them attractive for day traders who seek quick profits from large price swings.

Technical Trading: Many traders use gap ups as part of their technical analysis strategies, looking for continuation or reversal patterns after the gap occurs.

Example: If a stock closes at $50 and opens the next morning at $55, the stock has gapped up by $5. The cause could be positive news, like a strong earnings report released after market hours. Traders and investors rush to buy the stock pre-market, driving up demand and, consequently, the opening price.

In summary, gapping up indicates a strong surge in buying interest, often fueled by news or technical factors, and can lead to rapid price movements. For traders, understanding the cause of the gap and the potential for follow-through or reversal is key to profiting from these moves.

Free Live Feeds gainers/gappers on youtube

Step # 2 : Check for News Catalyst On Gappers

How Stock Prices Rise on a News Catalyst

Top and bottom of each hour is most likely time for News to drop.

Stock prices are highly sensitive to news, and one of the most significant drivers of sharp price movements is the impact of a news catalyst. Whether it's an earnings report, a major product launch, or a change in economic policy, news events can dramatically influence investor sentiment, leading to sudden buying interest and price increases.

Why Does News Matter?

Investor Sentiment: News shapes how investors perceive a company's future prospects. Positive news, such as better-than-expected earnings or a new partnership, can create optimism. As investors anticipate higher future profits, they buy shares, pushing the price up.

Market Reactions: Traders often react swiftly to breaking news, especially if it's unexpected. This can lead to increased demand for a stock as more people look to capitalize on the new information. Higher demand generally means higher prices.

Momentum Trading: Many traders and algorithms are programmed to follow trends. If positive news pushes a stock higher, it can trigger a wave of buying as traders jump in to ride the momentum, further driving the price up.

Types of News Catalysts that Drive Stocks Higher

Earnings Surprises: When a company reports earnings that surpass analyst expectations, it signals strong financial health, often leading to a stock price jump.

New Product Announcements: A breakthrough product can boost investor confidence in a company's growth potential, leading to stock price appreciation.

Mergers and Acquisitions: News of a merger or acquisition is typically seen as a sign of growth and expansion, which can lead to a stock rally.

Economic Policy Changes: Changes in interest rates, taxes, or government regulations can have a major impact on stock prices. Positive economic reforms may boost a sector or company, leading to price increases.

How to Trade News Catalysts

For day traders, capitalizing on news-driven stock movements requires quick action and sharp analysis. Here’s how you can position yourself:

Monitor Breaking News: Be ready to act on the latest information with real-time news alerts.

Analyze the Impact: Not all news will have a lasting effect. Focus on events that have long-term implications for the company's fundamentals.

Follow the Trend: Stocks often see a strong initial surge after news breaks, followed by continued momentum. Look for buying opportunities in the early stages of a trend.

Understanding how news affects stock prices gives traders an edge, allowing them to profit from quick market reactions. Stay informed, stay nimble, and you can capitalize on these catalysts!

Step # 3: Relative Volume at Least 5X the Average Volume Or More On Stocks Under $10

This can be found on most scanners/screeners

Relative volume (often abbreviated as RVOL) is a key metric used by traders to measure the amount of trading activity (volume) in a stock relative to its average volume over a specific period of time. It helps traders gauge whether the current trading volume is significantly higher or lower than what is typical for the stock.

Here's how it works: Basic Concept:

It compares the current volume of a stock (often measured at a particular time during the day) to the average volume over a predefined period (like 10 days, 30 days, etc.).

A relative volume of 1.0 means that the stock is trading at its average volume.

If the RVOL is greater than 1, it indicates that the stock is experiencing higher-than-average volume. If it's less than 1, the volume is below average.

Significance:

High RVOL: A stock with a relative volume significantly higher than 1 (like 2 or 3) indicates more market interest and often accompanies strong price movement. Traders look for high RVOL to spot stocks that could be breaking out or in play.

Low RVOL: A stock with a relative volume significantly below 1 may be less active, indicating a lack of interest or fewer trades.

Practical Usage:

Day Traders: They often rely on RVOL to find stocks that are actively being traded. High relative volume can mean that many participants are involved, which might create better opportunities for price movements and liquidity.

Swing Traders: RVOL can help identify key points where a stock is seeing increased attention and might be at the start of a new trend.

Example:

If a stock typically trades 1 million shares per day on average, but today it has already traded 3 million shares by noon, its relative volume would be 3. This could indicate significant interest in the stock, possibly due to news or a catalyst.

Relative volume is a valuable tool in assessing the strength behind price movements and identifying stocks worth trading.

Step # 4: The right priced stocks $1 to $10

Stocks priced in this bracket have a greater chance of making a big move up in price in shorter time period.Stocks priced under $10, often referred to as "penny stocks" or "small-cap stocks," can exhibit a greater chance of significant price increases in a short period for several reasons:

1. Lower Price Per Share:

   • Accessibility: Lower-priced stocks are more accessible to retail investors, allowing more people to buy shares. This increased participation can lead to greater demand, driving up prices.

   • Percentage Gains: A small dollar increase in a low-priced stock translates to a large percentage gain. For example, if a stock priced at $5 rises to $6, that’s a 20% increase, while a stock at $50 would need to rise to $60 for a similar gain.

2. Higher Volatility:

   • Rapid Price Movements: Stocks under $10 often have lower market capitalization, making them more susceptible to large price swings due to smaller trade volumes. This volatility can create opportunities for quick gains.

   • Market Reactions: News, earnings reports, or other events can lead to sharp price movements, particularly in lower-priced stocks where a small number of trades can significantly impact the stock price.

3. Potential for Growth:

   • Emerging Companies: Many companies priced under $10 are smaller or in the early stages of growth. If they have strong fundamentals or a breakthrough product, they might see substantial price appreciation as their business expands.

   • Market Interest: If a low-priced stock captures market interest or media attention, it can attract a wave of new investors, leading to rapid price increases.

4. Speculation:

   • Trader Behavior: Traders often speculate on penny stocks, hoping to capitalize on short-term price movements. This speculative nature can lead to increased buying activity, driving prices up.

   • Pump and Dump Schemes: While unethical, some traders engage in "pump and dump" schemes to artificially inflate the price of low-priced stocks, creating opportunities for quick gains before the price inevitably falls.

5. Low Barriers to Entry for Institutional Investors:

   • Entry Points: As these stocks gain attention, institutional investors might start accumulating shares, leading to increased demand and higher prices. Their entry into a low-priced stock can significantly impact its price trajectory.

Considerations:

While stocks under $10 can offer substantial opportunities for short-term gains, they also come with increased risks, including lower liquidity, higher volatility, and the potential for significant losses. Investors should conduct thorough research and consider their risk tolerance before investing in these stocks.

Step # 5 : Low Float = Supply & Demand. Outstanding Shares Available Under 20 Million.

This also can be found on screeners/scanners

A low float stock refers to a stock with a relatively small number of shares available for public trading. The "float" represents the number of shares that are freely traded on the open market, excluding shares held by insiders, employees, or major stakeholders that are typically locked in for long periods. Low float stocks can be highly volatile and attractive to day traders due to the potential for rapid price swings.

Key Points about Low Float Stocks:

Limited Supply: A low float means there is a small supply of shares available to the public. This limited availability can make the stock more prone to big price movements, especially when there’s a sudden surge in demand.

High Volatility: Because there are fewer shares available, any significant buying or selling activity can cause sharp price fluctuations. For example, positive news or a spike in interest from traders can send the price soaring, while negative news can cause rapid declines.

Increased Risk and Reward: While low float stocks offer the potential for significant gains in a short time, they also carry higher risk. The same volatility that can create large profits can also lead to large losses if the stock moves against you.

Attraction to Day Traders: Day traders are often drawn to low float stocks because of the potential for quick, large percentage moves within a single trading session. These stocks are frequently mentioned in “hot stock” lists or by traders watching for momentum plays.

How to Identify a Low Float Stock:

Number of Shares: Stocks with fewer than 10 million shares in their float are typically considered low float. However, this number can vary depending on the stock and market.

Volume and Liquidity: Low float stocks tend to have lower trading volume, which means fewer shares are being bought and sold regularly. This low liquidity can contribute to greater price volatility.

Stock Screener Tools: Most stock screening tools allow you to filter stocks based on their float size. You can set specific parameters to focus on low float stocks if that’s your trading strategy.

Example of a Low Float Scenario:

Imagine a company with only 3 million shares available in its float. If a piece of positive news, like an earnings surprise or a new partnership, attracts many buyers, the demand for those limited shares could drive the price up quickly. However, if traders start selling, the price could plummet just as fast.

Low float stocks can offer great opportunities for short-term traders, but their volatility requires careful risk management and quick decision-making. Understanding the dynamics of supply and demand is crucial when trading these stocks.

A few notes for new Day Traders:

Which indicators I use and the power of the MACD

#1 The MACD :

The MACD (Moving Average Convergence Divergence) is a popular momentum and trend-following indicator used by traders to identify potential buy and sell signals in the stock market. It helps traders spot changes in the strength, direction, and duration of a trend. The MACD is based on the relationship between two moving averages of a stock’s price.

Components of the MACD:

MACD Line: This line is calculated by subtracting the longer-term Exponential Moving Average (EMA) from the shorter-term EMA. Typically, the standard settings use a 12-period EMA and a 26-period EMA.

MACD Line = 12-Period EMA - 26-Period EMA

Signal Line: This is a 9-period EMA of the MACD line. It acts as a trigger for buy and sell signals. When the MACD crosses above or below the signal line, it indicates potential entry or exit points.

Signal Line = 9-Period EMA of the MACD Line

MACD Histogram: The histogram represents the difference between the MACD line and the signal line. It visually shows the momentum of the stock. When the MACD line is above the signal line, the histogram is positive (above zero), and when it’s below the signal line, the histogram is negative (below zero). The size of the bars also indicates the strength of the momentum.

How the MACD Works:

The MACD shows the relationship between two moving averages, essentially comparing short-term and long-term momentum. Here's how it is interpreted:

MACD Line Crossing Above the Signal Line (Bullish Signal): When the MACD line crosses above the signal line, it signals that the short-term momentum is accelerating faster than the long-term momentum. This is often seen as a buy signal because it suggests the stock’s price may continue to rise.

MACD Line Crossing Below the Signal Line (Bearish Signal): When the MACD line crosses below the signal line, it indicates that the stock's momentum is weakening. This is often viewed as a sell signal, signaling that the stock’s price could decline.

Zero Line Cross: When the MACD line crosses the zero line, it shows a change in the direction of the trend. If it crosses from below to above, it indicates a shift from a bearish to a bullish trend, and vice versa for a downward cross.

Divergence:

Bullish Divergence: When the stock's price makes new lows, but the MACD makes higher lows, this indicates that downward momentum is weakening and a reversal to the upside may occur.

Bearish Divergence: When the stock's price makes new highs, but the MACD makes lower highs, it signals that upward momentum is weakening, which could precede a price drop.

Example of MACD in Action:

Imagine a stock has been in an uptrend for several days. The MACD line is above the signal line, and the histogram is showing positive bars, indicating strong momentum. Suddenly, the MACD line crosses below the signal line, and the histogram starts to shrink. This would be seen as a bearish signal, suggesting that the stock’s uptrend might be ending, and a pullback or downtrend could follow.

Conversely, if the stock has been falling, and you see the MACD line cross above the signal line while the histogram turns positive, it might be a bullish signal, indicating a potential reversal and that the stock could start rising.

Strengths of the MACD Indicator:

Trend and Momentum: The MACD effectively combines trend-following with momentum, giving traders a clearer picture of both price direction and strength.

Easy to Read: The crossovers and histogram make it relatively simple to interpret buy and sell signals.

Works in Various Markets: MACD can be used effectively in trending markets for stocks, commodities, cryptocurrencies, and more.

Limitations of the MACD:

Lagging Indicator: Since the MACD is based on moving averages, it’s a lagging indicator, meaning it reacts to past price movements. This can cause delays in identifying trend reversals, especially in highly volatile markets.

False Signals: In sideways or choppy markets, the MACD can generate false signals, where a crossover may indicate a new trend, but the price quickly reverses, trapping traders in losing positions.

In summary, the MACD is a versatile and widely-used tool for identifying trends and momentum in the stock market. By understanding how to interpret the MACD line, signal line, and histogram, traders can better time their entries and exits to align with the market’s direction.

#2 VWAP :

VWAP (Volume-Weighted Average Price) is a trading indicator that shows the average price a stock has traded at throughout the day, based on both price and volume. It helps traders determine whether a stock is being bought or sold at a fair price relative to its trading volume.

How VWAP Is Calculated:

VWAP is calculated by taking the total value of shares traded (price multiplied by volume) and dividing it by the total number of shares traded over a specific period of time. The formula is:

VWAP = ∑ (Price×Volume) ∑ Volume VWAP= ∑ Volume ∑ (Price×Volume)

What VWAP Represents:

Price and Volume Balance: VWAP gives an intraday weighted average price, meaning it provides the true average price at which a stock has been traded based on both price and volume. This makes it a more accurate reflection of the stock’s value over the course of the day compared to a simple moving average (SMA).

Benchmark for Fair Value: Traders often use VWAP as a benchmark to see if a stock is trading at a "good" price. Large institutional traders or investors may use it to ensure they are buying below or selling above the VWAP, indicating a better-than-average price compared to the day’s overall activity.

How to Use VWAP:

Bullish Signal (Price Above VWAP): When a stock's price is trading above the VWAP line, it is considered to be in an uptrend. Buyers are generally willing to pay a premium above the average price, which indicates strength in the stock. Some traders view this as a potential buy signal.

Bearish Signal (Price Below VWAP): When a stock's price is trading below the VWAP, it indicates that sellers are more dominant, and the stock is in a downtrend. Traders may consider this a sell signal or avoid taking long positions.

Support and Resistance: VWAP can act as a dynamic support or resistance level. If the price approaches VWAP from below and bounces off it, VWAP acts as resistance. If the price approaches it from above and holds, VWAP becomes support.

Institutional Use: Many large institutional traders, such as mutual funds or hedge funds, aim to execute trades near or at VWAP to ensure they are not paying too much for a stock (buying above VWAP) or selling for too little (selling below VWAP).

Example of VWAP in Action:

Suppose you are watching a stock that opened at $100 and has been steadily rising, with high trading volume pushing the stock to $105. VWAP, calculated based on the prices and volumes throughout the day, might be sitting at $102. If the price continues to stay above VWAP, it signals that the stock is maintaining its strength. However, if the price drops and breaks below the VWAP, it may suggest that the stock is weakening, and sellers are gaining control.

Advantages of VWAP:

Fair Price Indicator: VWAP helps traders compare a stock’s current price to its average trading price for the day, helping them gauge whether the stock is overpriced or underpriced.

Volume-Based: Unlike a simple moving average that only factors in price, VWAP incorporates volume, which gives it more weight and relevance, especially when big institutional traders enter or exit positions.

Widely Used: VWAP is frequently used by institutional traders as a benchmark for their trading performance, making it a reliable guide for retail traders looking to trade in line with bigger players.

Limitations of VWAP:

Intraday Use Only: VWAP resets at the start of each trading day, so it is primarily an intraday indicator. It doesn't carry over to the next day, making it unsuitable for multi-day analysis.

Lagging Indicator: Since VWAP averages the stock price over the course of the day, it is a lagging indicator. This means it may not immediately reflect sudden price changes or spikes, and it becomes less useful as the trading day progresses.

Not Predictive: VWAP is more of a reference point or benchmark and doesn't necessarily predict future price movements. It reflects past performance rather than forecasting future trends.

In summary, VWAP is a valuable tool for intraday traders looking to assess whether a stock is trading at a favorable price based on the day’s volume and price action. By comparing a stock's current price to its VWAP, traders can determine whether the market is bullish or bearish and make more informed buy or sell decisions.

#3 The EMA 120 :

The Exponential Moving Average (EMA) is a type of moving average that gives more weight to recent prices, making it more responsive to new information compared to the Simple Moving Average (SMA). The EMA 120 refers to the 120-period exponential moving average, which calculates the average price of a stock (or any other asset) over the last 120 periods (these could be days, hours, minutes, etc., depending on the timeframe of the chart).

1. Calculation:

   • The EMA is calculated using a formula that gives more weight to recent prices.

   • The formula involves two main components:

     • Smoothing Constant.

     • EMA Formula.

2. Trend Identification:

   • The EMA 120 is often used to identify the overall trend of an asset. When the price is above the EMA 120, it suggests a bullish (upward) trend, while a price below the EMA 120 indicates a bearish (downward) trend.

3. Support and Resistance:

   • The EMA 120 can act as a dynamic support or resistance level. Traders often look at how the price behaves around this level. If the price approaches the EMA and bounces back up, it may be seen as support; if it breaks below, it could signal resistance.

4. Signal Generation:

   • Traders may use the EMA 120 in combination with other technical indicators to generate buy or sell signals. For instance, a common strategy is to look for crossovers between the EMA 120 and shorter EMAs (like the 20 or 50 EMA). A bullish signal occurs when a shorter EMA crosses above the EMA 120, while a bearish signal occurs when it crosses below.

5. Longer-Term Perspective:

   • As a 120-period moving average, the EMA 120 provides a longer-term perspective compared to shorter moving averages. It smooths out short-term fluctuations and helps traders and investors focus on the underlying trend.

Practical Application:

Traders often use the EMA 120 in conjunction with other indicators and chart patterns to make informed decisions. It's important to remember that, like all technical indicators, the EMA 120 should not be used in isolation. Combining it with other forms of analysis (like fundamental analysis, other technical indicators, or price action) can lead to more informed trading decisions.

These are tools and widgets I use to help with timely entries and exits of stocks I'm trading.

Turbo Trader widget with confirmations setting turned off. Classic Trade, Orders & Positions, Level 2 Bid & Ask, Time & Sales, Quote, Watchlist & Key Statistics.

The Right Place to Enter A Trade: Micro Pullback

A micro pullback in the stock market refers to a brief and minor decline in the price of a stock or an index during an overall upward trend. It’s essentially a small, temporary dip within a larger bullish movement.

Key Characteristics of a Micro Pullback:

Short-Term Decline: A micro pullback usually lasts for a very short period—anywhere from a few minutes to a few hours (or a day at most).

Minor Price Drop: The price drop during a micro pullback is typically small, ranging from 1% to 3%, depending on the volatility of the stock. It’s not a major correction but more of a slight downward movement.

Within an Uptrend: A crucial aspect of a micro pullback is that it happens within an overall upward trend. The stock or market is still trending higher, and this dip is considered a natural part of the market's movement.

Buying Opportunity: For traders, especially day traders and scalpers, a micro pullback can be an ideal time to enter a position. It’s viewed as a temporary pause or retracement before the stock continues its upward momentum.

Why Do Micro Pullbacks Happen?

Profit-Taking: As a stock moves up, short-term traders may take profits, causing a temporary dip in price before new buyers step in.

Market Sentiment: Small shifts in sentiment or momentary hesitation can lead to minor pullbacks. These are usually caused by technical factors rather than fundamental news.

Technical Resistance: A stock may hit a resistance level, where sellers emerge, leading to a small pullback. Once this level is overcome, the stock resumes its upward trend.

How to Trade a Micro Pullback

Look for Support Levels: Micro pullbacks often occur near support levels, where the stock finds buying interest after the small dip. Identifying these levels can help you time your entry.

Use Technical Indicators: Tools like moving averages, Fibonacci retracement levels, and RSI (Relative Strength Index) can help confirm when a micro pullback is likely ending, signaling a buying opportunity.

Quick Reaction: Micro pullbacks are fast and short-lived. Traders need to act quickly, buying the dip before the stock resumes its upward move.

Example:

Imagine a stock is on a steady uptrend, trading around $100, and suddenly dips to $98 over a short period due to some profit-taking or a momentary spike in selling. This dip is a micro pullback. Once buyers step back in, the stock may quickly recover and continue its upward trend, reaching $105 or higher.

Micro pullbacks are part of the natural ebb and flow of the market, offering sharp traders the chance to enter at slightly lower prices before the next leg up.

Disclaimer:

The information provided on Day Trader Doctor is for informational and educational purposes only and should not be construed as professional financial advice. The content is based on personal opinions, market data, and publicly available information, and while every effort is made to ensure accuracy, it may not always reflect the most up-to-date market conditions. Trading stocks, options, and other financial instruments carries risk, and individuals should conduct their own research or consult with a licensed financial advisor before making any investment decisions. Day Trader Doctor is not responsible for any financial losses or gains resulting from the use of this information. Always trade responsibly.

This disclaimer helps clarify that the content is informational and not official financial advice.

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