Basket Trading Methodology

PitBull

Established member
620 58
Hi

Another excellent article from jay and Rai of www.undergroundtrader.com

happy trading to all! :)

Pitbull



Basket Trading Methodology:

The dart throwing BULL market came to an end and those traders and investors who were simply lucky... fell through the cracks. This year was one of major contrast and truly was the best training environment to any trader who really wants to learn this game from the trenches. If you survived this market, you can survive and excel in any market. If you didn't survive this market, chin up. A hiatus is the best medicine to regain clarity.

We learned many things this year as clarity and FOCUS was the theme. The lack of these two qualities lead most traders to failure.

As we have preached daily about the importance of trading basket stocks, many have listened and exceled in the worst market conditions. These BASKET STOCKS are your source of income, bread and butter, personal ATM machine. If you have not picked out BASKET stocks, we ask that you take this pledge for the new year 2001:

I WILL PICK ONE BASKET STOCK AND FOLLOW IT ALL DAY, EVERYDAY WITH THE TOOLS. I WOULD RATHER BE BORED THAN BROKE.

^--- Post that on a sticky note and tape it to your MONITOR and read that everyday to yourself.

Now that we have that straight, let's get deeper. As is our style, substance is what you need... not just fancy cliches and textbook metaphors. Please print these steps out and tape them to your Monitor-- follow these steps daily until you turn blue in the face from boredom.

1) PICK A BASKET STOCK
These are some good candidates:

1) MSFT - Moves with the noodles and dow. Good volume, good volatility and oscillations, channels can get tight in lighter volume so be careful not to overtrade light volume.

2) KLAC - leader of the semi makers and thus sox.x. moves with the noodles. the naz can't move much in a direction without the support of the semi makers. therefore when noodles are rising but klac is sell fading likely, the noodles will give and reverse ....

3) QLGC - fast mover, leads the sans sector. good oscillator moves well with the 1 min stochastics, be careful on the open as they love to crank and lean this one.

4) INTC/CSCO/ORCL - very thick former tier 1's. look more for the trending moves rather than scalps since they move so slow.
2) WATCH YOUR BASKET STOCK WITH YOUR INDICATORS
a) Watch how stock MOVES with the 1 and 3 min noodles
b) Watch 3 min ma trend- 5pd resistance, 15 pd support
c) Watch the BEAUTIFUL synergy with 1 min stoch, the 1 min stochastics chart is only useful for the extreme overbought and oversold reversals that means under 20 band oversold reversal back through 20 band for longs and over 80 band reversal back under for shorts
d) note the wider time frames for foreshadowing effects 8/13/60 min on noodles and stocks
e) Put it all together and see the synergies--- NEWS means nada. Stocks move in ranges because market makers adjust prices to the futures thereby the noodles are your lead indicator! When futures move UP and stock doesnt, then it may be FADING into the buying aka a SELLSIDE BIAS and vice versa on a buyside bias.

3) PLAY ONLY 1 MINUTE STOCHASTICS REVERSALS ON PAPER!
a) Best long setups for scalps? 1 minute stochastics reversal through 20 band back up coupled with 1 minute noodles stochastics-- and 3 minute noodles uptrend emergence. Vice versa 80 band reversals for the short.
b) On a PANIC or MOMENTUM breakout, the shorts can be measured to the 5 period and 15 period for full 3 min noodles oscillations down.
c) On a PANIC or MOMENTUM breakdown, the upside on the long reversal can be measured to the 5 period and 15 period. Eg: CIEN panics down from 93 to 90-1/4 as noodles take a pullback. 1 min stochastics tries to reverse back UP and 1 min noodles turning back up through the 20 band 3 min noodles stall. CIEN 3 min ma chart shows 5 period at 92-1/4 and 15 period at 92-3/4, so a stochastics bounce entry here at 90-1/4 x 90-1/2 tells me my upside is 92 x 92-1/2 range so that is the proverbial MEAT between the bones.

*** important! Be patient and papertrade or use a simulator. Dont worry about gains, worry about clips. 1/4 to 1/2 is ALL you need in the beginning, never kickyouself for getting out too soon *** Stochastics WORKS! You don't believe me? Pull up any stock on a 1 minute stochastics chart with an adjoining tick price chart and see how 7 out of 10 times the oscillations proved to be effective in the PRICE of the stock-- the proof is before your eyes.

4) GET YOUR SCALPS PROFITABLE 7 OUT OF 10 TIMES ON PAPER
a) This will be boring waiting for formations to emerge, but you should be hitting 70-80% success rate on your entries for scalps. The amount of the scalp DOESNT matter at first, only that you got a good entry with little wiggle and got an exit. This is your foothold and foundation you need in the beginning with a Basket stock.

5) TRADE CASH FOR ONLY 100 SHARES OF YOUR BASKET STOCK
a) 100 shares is NOT TO MAKE MONEY. it is to try to DUPLICATE your paper results to real life. This means you take 1/4 to 1/2 scalps with 100 shares to hone skills in real life WITHOUT sweating the Money, this allows you to focus on TECHNIQUE. The money will come later. DO NOT FOR A SECOND DELAY TAKING PROFITS BECAUSE YOU ARE ONLY PLAYING 100 shares. YOU ARE NOT LOOKING TO MAKE $$. YOU ARE LOOKING TO PERFECT TECHNIQUE!!
b) Once you can duplicate paper results to cash, hitting 70-80% success rate, then you are ready to increase your share load-- now you are ready to make $.

6) INCREASE SHARELOAD INCREMENTALLY
a) from 100, to 200, to 300, to 400, to 500, etc..
b) You should go SLOWLY so that you dont shake your equilibrium as far as your comfort level when in the trade. start with 100/200 shares and EARN the right to play more shares. only after 4 of 5 days green up shars by 100 shares evry 2 weeks. if you slip to 2/3 days green drop down by 100 shares for a week.
c) You will KNOW when you are taking too many shares because you will FEEL ANXIETY <-- NOT GOOD. Drop share load back DOWN when this happens.

7) DON'T OVERTRADE WEAK SIGNALS!
a) Deadzone and consolidations on light volume a no no

8) LEARN TO PARE SHARES INTO 3 MIN NOODLES UPTRENDS
a) This is the highest level when you have got scalps down pat, now you are playing larger shares to be able to PARE into sellers on rising 3 minute noodles even though 1 minute noodles may stall. The reason behind paring is to take some money off the table to give you cushion on the wiggles prior to a greater move.

9) BE CONSISTENT!
a) You should be hitting green on a daily basis-- understand oscillation days are best for stochastics moves and trend days are best for 3 min ma breakout/down patterns. Do not overtrade light volume

10) PICK ANOTHER BASKET STOCK (GO BACK TO STEP 1)


Phew! Thats a mouthful for you to swallow, BUT IT WORKS! Ask anyone in the Pit who is making steady consistent GREEN daily and they will tell you, the basket stock trading method is the ONLY way to go! We just touched on the basics here but START with these steps. You need a FOOTHOLD before you can climb a mountain. The above takes FOCUS and discipline to implement. It works. The question is do you have the CONTROL to implement the above?
 

jogy

Junior member
17 0
Hi Pitbull
I agree , excellent article
i was looking for details of this article on the underground trader's website, to see if it is tradable. I can find it there. Is it posted on that site?
Where can I get the detail of the strategy that one can trade?
 

jogy

Junior member
17 0
hi pitbull.
all is well, pit bull. trust all is going well for u too.
Tks for the link.
Obviously you subscribe to the underground traders. I'd be interested to know something about its performance? Also, how long does it take to catch on to their style of trading? some times these special strategy are so difficult that many traders just give up, coz they take so long to learn..lol
rgds
jogy
 

PitBull

Established member
620 58
I dont actually subscribe coz its all intraday commentary and I have a full time job, but you can learn a few tricks from these guys. Does take a bit of learning though. Buy the book "Secrets of the underground trader", but it is more for advanced techiques.

I've heard that subscribing to his intraday commentary is very insightful to say the least. This would be at the top of my list if I were to subscribe to any trading website.

Happy trading guys!
 
 
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