Learn the language of setups

In your trading journey you will have significant breakthroughs once you learn the language of setups. Profitable traders think in setup language while novices think in individual stock term.

In a day you will see several posts by members about individual stocks or emails about individual stocks. If you actively participate in a social media site like Stocktwits, you will see several posts on individual stocks.  Something catches their fancy and or they know about a particular stock and they are enamored by it and want to know whether it is good buy or not. That thinking is not much of help.


Setup selection is key to successful trading. Setup selection allows you to condition your behavior. It allows you to develop your procedural memory. It allows you to automate your thinking. Setup oriented thinking is process based thinking. It is how do I find this kind of stock again and again kind of thinking. It is about ways to catch fish.

When it comes to setup selection your time frame is very critical. A setup that is good for day trader may not be good for swing trader. A swing trading setup may be extended setup for position trader.

Over next 30 days we will look at vast range of setup ideas. Once you get in to details of those setups you will learn the basic building blocks of designing your own setups....

Starting from 1St December there will be extensive discussion of various kinds of setups used by different traders.It will be a month long series of posts and most days multiple posts during the day on the members site. The setup series will give you large number of ideas that you can incorporate in to your trading

Study of setups is key to developing methods. A extensive understanding of setups would give you a life long foundation to design your own trading setups based on your personality and time horizons.

Once the series is over the entire series of posts would be compiled in a separate section in learning areas 

Vehicle selection +setup selection+procedural memory development+self efficacy beliefs+situation awareness+risk management =Profitable trading

Over next few months we will look at each of the factor in detail...

The rally leaders from previous bounce have some stocks holding up well

After 7 to 8 days of back to back negative days a reflex bounce is what we witnessed yesterday.

Will there be "sustained" follow through. The move almost faded before last 5 to 10 minutes of spike at close. We will know in next 48 hours whether the bounce has staying power.

One of the problem for the market might be severely depleted leadership. Some f the leaders that were holding up relatively well a month or so ago are now in bearish camp.

The rally leaders from previous bounce have some stocks holding up well and going sideways.

You can find them using the pcf  100 * C / (C'10/03/11') sideways. Those stocks have potential for further upside if the rally attempt sticks.

Cash is better option in this market  as of now for swing trader.

Significant damage to breadth

Stockbee Market Monitor

In last few weeks there has been significant damage to breadth. There has been negative breadth thrust.

The implication is clear. Any next up leg will need to start with a breadth thrust.

A bounce not supported by significant breadth will be short lived.

If more selling continues then we will have a very good setup on long side. The selling would lead to readings on primary indicator going to extreme and that would be good for a sustained rally.

In the short run after market being down for so many days in a row, a chance of reflex bounce are extremely high. However sentiments paint mixed picture. The Investors Intelligence sentiment is at 47.4% bullish. Which indicates very high bullishness.

Don't think beyond 3-4 days

Range bound action

Don't think beyond 3-4 days is the message of the market. That has been the case for entire year.

Lot of people on short side got excited on 50MA break , but that was a mini trap. Unless you closed your 3 days shorts early, many reversed.

Bounce does not mean start of new bull phase. That will depend on breadth thrust.

More likely weak, low volume bounce for this week.

Volume on Wednesday and Friday will be very low.

Leading horsemen look to be turning

AAPL, CMG, AMZN, GOOG, BIDU, PCLN have been the go to stock in this market for last one year in any rally or correction.

Same old tiered leadership has persisted for months....

In recent days they are under pressure....

The leading horsemen are worth keeping an eye on....

News driven market

The over arching theme in this market is Europe. The daily moves are dictated by who sneezes in Europe currently. But under the hood some nice setups are developing.

A volatile range

A volatile range has formed near the top. essentially market has not gone anywhere in 11 days but the daily moves are big. A convincing break from range is required. 

Watch Europe

Watch Europe



As of now market gyrations are driven by the European soap opera.

But besides that breadth thrust on bearish side is something to be aware of.

Breakouts after breakouts are failing.

More and more growth stocks and stocks with 6 month to a year momentum are breaking down. In most cases breaking down big.

The market will need breadth thrust to come out of this funk.

Follow through or a bounce

Big negative day on breadth. Prior such negative day did not result in follow through. So we may be back to range.

European soap opera continues...

News driven volatility is a day today affair in this market currently. The solution is to manage risk and play small. It is difficult to get fully invested with conviction in this environment. 

In last 4 to 5 days market looked good and breakouts were expanding. And now we have this gap down. 

Breakout of this range will require big breadth thrust

Market is digesting the big bounce. It has settled in small range near top.

Many stocks look like forming first phase of nice sideways setups.

To breakout of this range will require big breadth thrust again...

Two possible scenarios

Market had a sharp bounce in last 24 days. As a result the MM is in confirmed bullish mode.

The number of breakouts continue to expand. in last 2 -3 days some stocks near 52 week high have started to breakout.

Possible scenarios:

1 market goes sideways for sometime before breaking higher

2 market bounce fails.

As of now the day to day action is lead by Europe news. If there is resolution to that problem the first scenario is more likely.

Greek Drama

Greece news drives the short term market action. As of now we will be back to range till it gets resolved. It might be volatile range. This year has seen many such range bound periods. 

Range might form

It was ugly day. But in this market 1000 kind of days are common.

S of now this still is a pullback because breadth is positive. A 2 to 3 weeks of orderly pullback would be ideal. But the market may not offer you that....

We might go back in to range....

Not an orderly pullback

This is not an orderly pullback , if we sell off .

Be careful out there. Let us see how this market reacts to this pullback.

Any huge negative breadth day of 500 plus will be cause for worry.