Losing Trades Got You Down? Try These Basic Setups

Unfortunately, my ambition of making this a “No-red Feb.” was shot down three times this week, but I still managed to finish an extremely shortened month with my best performance in a while. By the end of trading on February 28, I managed to ring the register for over $79,000 in just 17 days of trading, that’s an average daily profit of over $4,600.

The bulk of that profit came in the first couple days of the month, while the back half was peppered with smaller wins and, to my disappointment, three red days that set me back about $4,000. Luckily, I followed my rules for when to walk away after sustaining more than $2,000 in losing trades or having three losing trades in a row, otherwise I might not be so pleased with my February total.

While red days are never good, having the occasional loss can be a useful catalyst to reassess and reorient your trading strategy. I certainly reflected on how I was approaching the market after the past few days. Overall, I had tried to be content with taking the best setups I could find. But even then, the market just wasn’t holding up when I tried stepping on the gas.

So, I’m starting March by going back to basics. I’ve already exercised a few simple trading setups in the final days of February, but I thought I spend the time to go over a couple simple trading setups that are reliable standbys if you find yourself in a slump.

Gap-and-Go

One of my most frequently used trading tools is my premarket gap scanner I use to keep an eye open for stocks trading up more than 30 percent in premarket. There are a lot of opportunities for profitable trading strategies when a stock is trading much higher than its previous close, but the easiest one to capitalize on is the gap-and-go.

You can see a stellar example of this in action in FTE Networks Inc FTNW from last Tuesday’s recap video, but as a quick summary: a gap-and-go setup relies on noting a gapping stock’s premarket high and buying into it once it hits that level in the regular session, generally after some consolidation after the open. Typically, once it breaks this level, it continues higher for a very short duration.

Traders need to be quick to scalp a profit off of this trade, but it can be a very reliable setup, which is why I recommend keeping a gap scanner handy when you start your trading day.

Opening Range Breakout

Another scalping strategy it pays to keep in mind, opening range breakout works under a similar premise as the gap-and-go strategy. However, instead of waiting for a stock to break above its premarket high, using this strategy involves looking for a stock opening above its previous high or below its previous low.

You can see some an example of the thought process behind this setup in Thursday’s trade in China Internet Nationwide Financial Services Inc. CIFS. While I was using the daily chart as my signal that I could get early entry on a breakout, the opening range breakout works under the same premise but a smaller time frame.

This setup typically relies on a 15- or 30-minute candlestick chart. Traders look for their entry when the current candle tops the previous candle’s high. That serves as their cue to enter a position since the high open generally indicates strong buying pressure. And, like the gap-and-go strategy above, traders look to exit the position quickly, scalping off the opening momentum before selling pressure sets in.

While I wouldn’t recommend setting your sights too high on the profits from these setups, they are two time-tested strategies that are quick and relatively easy to perform. Nevertheless, I will always caution new or developing traders to practice these strategies in simulated trading before testing them out with real money. I’ll also stress that every trader should manage their risk in any strategy by placing stop limit orders should a trade not work out as you expect. No matter how reliable a setup looks, a chart breakdown is always a possibility.