Success in the stock market is all about consistently executing a process with a proven 'edge.' Here, I’ll share the core setups I rely on to identify and buy stocks — these are the strategies that give me my edge in the market. Each setup is crafted to maximize potential while managing risk, focusing on tried-and-true patterns that deliver results over time. Whether you're new to trading or looking for swing trading entry tactics, these setups offer a clear path to strategic, high-probability entries.
Entry Tactic 1: Pullback Entry -
Capitalizing on Market Retracements
1. Identify Momentum in a Strong Sector and Theme
First, ensure the stock is in a favorable sector and industry, ideally within a current hot theme like Artificial Intelligence (AI), semiconductors, or renewable energy. Stocks in these themes often experience increased attention from investors, making them more likely to show strong momentum. In this case, the chart reflects NVIDIA (NVDA), a leading company in AI and semiconductors, both of which are popular investment themes.
2. Look for a Pullback of 3 to 5 Days
The next step is to identify a pullback in a stock that has recently shown momentum. A pullback typically means the stock’s price declines slightly, allowing it to reset before potentially continuing its upward trend. A good pullback lasts at least 3 to 5 days and indicates temporary profit-taking or market consolidation. This pause often sets the stage for a strong continuation move if buying interest returns.
3. Analyze the Daily Chart with the 5-Day Simple Moving Average (SMA-5)
The 5-day Simple Moving Average (SMA-5) is an excellent tool to assess short-term momentum. On the daily chart:
When the SMA-5 line is green, it indicates that the moving average is rising, signifying positive short-term momentum.
When the SMA-5 line is red, it shows a declining moving average, indicating that the stock is pulling back or consolidating.
For a buy entry, wait until the stock shows signs of renewed momentum by crossing above the SMA-5. This crossover signals that buyers are stepping back in after the pullback, and it’s a potential entry trigger.
4. Move to the 5-Minute Intraday Chart for Precision Entry with ORH Breakout
Once the stock approaches the SMA-5 on the daily chart, switch to a 5-minute intraday chart to time your entry more precisely. Here, we look for an Opening Range High (ORH) breakout setup:
The ORH is the highest price level reached during the opening range, typically the first 5 to 30 minutes of trading.
Enter the trade when the stock breaks above this ORH level on the 5-minute chart, indicating a strong momentum push beyond the initial range. Additionally, ensure that the stock is trading with high Relative Volume (RVOL), as this is a key indication that the stock is likely to gain more momentum and sustain the breakout.
5. Set a Stop Loss at the Low of Day (LoD)
Risk management is crucial in any trade. When entering an ORH breakout, place your stop loss at the Low of Day (LoD) if the trade is entered after the market opens at 9:30 EST. This placement ensures that if the trade fails and the stock falls below the day’s low, your loss is minimized.
6. Ensure a Favorable Risk-Reward Ratio (1:3 or Minimum 1:2)
Before entering the trade, check that it offers a favorable risk-reward ratio of at least 1:3. This means that the potential reward should be three times the risk taken on the trade. In some cases, a 1:2 ratio can be acceptable, but 1:3 is ideal. This discipline helps ensure that even if only a portion of your trades succeed, you remain profitable over the long term.
Example of Applying This Strategy (NVDA)
Daily Chart Analysis: On the daily chart, the SMA-5 has shifted to green, indicating the 5-day moving average is now rising. After a brief pullback, NVDA has crossed above the SMA-5, signaling renewed momentum.
Entry on 5 minutes Intraday chart
Intraday ORH Setup: Moving to the 5-minute chart, we monitor the opening range and identify the ORH. Once NVDA breaks above this ORH level, we enter the trade.
Setting Stop Loss: Place the stop loss at the Low of Day, ensuring a controlled risk in case the breakout fails.
Assessing Risk-Reward: Ensure that the projected target (at least 1:2 or, ideally, 1:3) aligns with your risk for the trade. This target can be based on the previous swing high or another relevant resistance level.
Entry Tactic 2: Leveraging Daily Breakouts and Intraday Open Range Highs (ORH) for Optimal Momentum
For swing traders, using two specific entry setups can help capitalize on breakout momentum: the Breakout over Pivot on a daily chart and the Open Range High (ORH) on an intraday chart. Here’s how each setup can be utilized effectively for entry
Step 1: Daily Chart Breakout
Look for the stock to break out of its defined range on the daily chart, typically indicated by a move above a key pivot point. This daily breakout signals that the stock may have the potential to trend higher.
Step 2: Intraday ORH Entry
Once the stock begins breaking out on the daily chart, refine your entry by focusing on the Open Range High (ORH) in an intraday time frame, such as the 1-minute, 5-minute, or 30-minute chart. The goal is to enter when the breakout becomes evident, choosing the ORH based on the timing of the move. Here are some examples:
1-Minute ORH:
Scenario: A stock gaps up over its daily pivot point right at the open, indicating a strong breakout.
Action: Wait for the first 1-minute candle to close, establishing an intraday range. Enter when the stock surpasses the high of that first 1-minute candle, ideally around 9:31 EST.
5-Minute ORH:
Scenario: A stock starts breaking out within the first 5 minutes of the session, reinforcing the breakout signal.
Action: Allow the first 5-minute candle to close. Enter as the stock moves above the high of this 5-minute candle (5-minute ORH), which could occur as early as 9:35 EST.
30-Minute ORH:
Scenario: The breakout on the daily chart occurs after 9:35 but before 10:00 EST, indicating a delayed but strong continuation signal.
Action: Wait until the first 30-minute candle forms. Enter as the stock clears the high of this 30-minute candle (30-minute ORH), possibly around 10:00 EST.
Late-Day Breakout:
Scenario: The stock does not break out of its daily range until later in the session. By this time, it will likely have exceeded previous intraday highs.
Action: Enter based on the daily chart breakout itself rather than an intraday ORH since the breakout move on the daily chart is now confirmed.
By using these entry setups, swing traders can refine their timing and gain exposure to breakout momentum when it becomes most apparent. This strategy balances the broader daily trend with precise intraday entry points, making it ideal for those seeking swing trading entry tactics to achieve optimal trade execution.
Example Entry: $LUMN – Entry triggered on November 6, 2024, at 10:00 AM.
Breakout on Daily Chart
Enter as the price breaks above the Open Range High (ORH) on the intraday 30-minute chart.
Always remember Mark Minervinis Rules:
Always use a stop loss.
Define your stop before you enter.
Never risk more than you expect to gain.
Nail down decent profits.
Never let a good-sized gain turn into a loss.
Never average down.
Never get bold when running cold.
Entry Tactic 2: Breaking a Trendline
When the price consistently touches the trendline, it validates the level, making it more significant as a support or resistance point. A trendline is deemed valid after at least three contact points, indicating that traders are closely watching this level.
Entry Tactic 3: VCP Volatility Contraction Pattern
In his book “Trade Like a Stock Market Wizard,” Minervini illustrates the VCP with a stock that initially pulls back by 25%, then 15%, and finally 8%, each with decreasing volume. This pattern indicates that selling pressure is subsiding, and the stock is poised for a breakout.
Key Characteristics of the VCP:
Price Contractions: The stock experiences successive pullbacks, each less severe than the last (e.g., a 25% drop followed by 15%, then 8%). This sequence reflects a reduction in volatility and selling pressure.
Volume Decline: Accompanying the price contractions, trading volume decreases, indicating a reduction in supply as fewer shares are sold. This volume pattern supports the notion of accumulation.
Tightening Price Range: The stock's price movements become more confined, forming a tighter base. This consolidation suggests equilibrium between buyers and sellers, often preceding a breakout.
Pivot Point: The culmination of the VCP is a specific price level, known as the pivot point, where the stock is poised to break out. A surge in volume and price beyond this point signals the potential for a significant upward move.
Trading the VCP:
Identification: Traders should look for stocks in a strong uptrend that enter a consolidation phase exhibiting the VCP characteristics.
Entry Point: A position is typically initiated when the stock breaks above the pivot point with increased volume, indicating the start of a new upward trend.
Risk Management: Implementing stop-loss orders just below the most recent contraction low helps manage risk if the breakout fails.
By understanding and applying the VCP, traders can identify stocks that are primed for substantial moves, allowing for entries with favorable risk-to-reward ratios. This pattern is a cornerstone of Minervini's trading strategy, emphasizing the importance of timing and risk management in
Entry Tactic 4: EMA Crossback Setup
The EMA Crossback Setup offers swing traders an effective strategy to capitalize on consolidation phases in trending stocks. This setup, using the 10- and 20-day exponential moving averages (EMAs), signals an ideal entry point as a stock takes a brief pullback, allowing traders to join the trend with minimized risk. Here’s how to understand and trade this setup effectively.
Key Concepts
Understanding the Setup: After a strong upward push, a stock may enter a consolidation period, often drifting sideways or slightly downward. This pullback toward the EMAs indicates that the stock is "digesting" its gains, which can provide a low-risk entry as it approaches these support zones.
EMA Crossback Signals:
Consolidation near EMAs: Look for the price to drift back toward the 10- and 20-day EMAs with lighter volume. Lower volume in this phase suggests a temporary pause rather than a reversal, setting the stage for a continued uptrend.
Pivot Point Creation: As the price nears the EMAs, a pivot point often forms. This point is crucial—it gives traders a defined level to watch for a break or hold, making it easier to manage risk.
Entry and Stop Placement:
Entry Signal: A strong breakout above the pivot with increased volume signals that buyers are ready to push the price higher again. This is your cue to go long.
Stop Placement: Place your stop just below the pivot or recent lows within the consolidation. This approach keeps risk tight while allowing for potential upside if the trade moves in your favor.
Volume and Price Action:
Look for decreasing volume as the price pulls back toward the EMAs. If the stock respects these averages and volume decreases, this is a good sign that selling pressure is easing.
If the price and volume align at the pivot, consider entering with conviction for an upside move.
Managing the Trade:
Once in the trade, use a trailing stop aligned with the EMAs. As the price moves up, gradually raise your stop, allowing you to protect profits while staying in the trend.
Multiple Time Frame Confirmation:
Daily and 65-Minute Charts: These can help verify intermediate support, showing if the stock is holding its trend across time frames.
15-Minute Chart: This chart helps fine-tune entries, showing precise price behavior at the pivot.
Putting It into Practice
When you spot a consolidation near the EMAs, check for relative strength in both the stock and the broader market. Confirming this setup on multiple time frames enhances reliability and reduces false signals. By focusing on these elements, you can improve your timing and confidence when executing the EMA Crossback Setup, setting yourself up for a strong, low-risk trade.
