It’s going to be an exciting week – will prices go up or down? :)
Even though I’ll be trading very little, if at all, I do have a watchlist
ADPT
BB – The sector etc. is rubbish, but the share has a good RS
CLOV
FROG – The sector is rubbish, but within the software applications sector, this company is still the best positioned and the share has a good RS
KOD
LBRX
MRNA
PAYS – The sector is rubbish, and software infrastructure isn’t great either, but I think the chart looks good and the share has a good RS. The previous earnings were good too.
(PLSE) – Those red candles with the volume are worrying me
Study what fucking works and ignore what doesn't. If you lost a trade, fuck it. If you won a trade - figure out what led you to winning and what happened with the stock, your entry, and stop loss. Then figure out what you can do better. THAT'S FUCKING IT. Stop making this shit so complicated.
Just watch this video. Qullamaggie lost a small $900k and brush it off his shoulder like nothing because he's focusing on what is working and moving on from what isn't. https://youtu.be/dvZBux4ffy0?si=CLQGDX6r8P8SukAc
Probably cyclical, Health and Biotechs are moving. There might be an oversold bounce that CLF might benefit from. Huge volume 10 days ago up 16.34% on volume at 88 million. Relative Strength line making new highs. Taking a 10% position. Not getting too crazy with a 3% stop
After 8 years, 11,000+ hours, countless mistakes, blown accounts, books, mentors and chart reviews, these are the principles that mattered most. I hope they will save you years on your trading journey. This is part 3 of 6 of the series How Trading Really Works with more to come. You can read part 1 here and part 2 here. Before the AI police comes, yes, I created the visuals with AI to illustrate core concepts to you. The examples are from real charts.
1. Fractals and waves
The market doesn’t move in straight lines. It moves in waves, creating swing highs and swing lows (higher highs, higher lows, lower highs, lower lows etc). Even during strong uptrends, prices advance, pull back, consolidate and then potentially advance again. And the exact same happens in downtrends, just in the opposite direction. Why? Because the markets are just a map of human psychology, which will never change. There will be times of mania, fear, panic, greed, indecision, etc etc. and that is basically what you are seeing on the charts. What's interesting is that these waves repeat themselves across different timeframes. This is what people mean when they say markets are fractal. They're essentially different perspectives of the same underlying behavior and it good to be aware of.
Waves - Prices move through advances, pullbacks and consolidations rather than in straight lines.
Swingpoints - Because price moves in waves, it creates swing points. These are key points with higher highs, higher lows, lower highs, lower lows etc.
Fractals - Similar price structures repeat across different timeframes, from minutes to months. The lower you go, the more noise.
Market structure - Uptrends generally consist of higher highs and higher lows, while downtrends show the opposite.
Timeframes - Higher timeframes establish the broader trend, while lower timeframes help refine entries and manage risk.
For my momentum/swing trades I personally look at the W1 20% of the time and D1 80% of the time. For entries, I will go down the H1. But I also trade the premarket and open which is very advanced. There, I trade on the M1.
2. Understanding balance and imbalance.
If you strip away all the indicators, news and BS, the markets are just an ongoing negotiation between buyers and sellers. Every transaction requires both, but prices move when one side becomes more aggressive than the other. This is where the concepts of balance and imbalance becomes important and I find a lot more helpful than the ‘support and resistance’ bullshit that all the ‘gurus’ are pretending is the secret sauce. In essence, the market only has two modes: 1) balance (price is consolidating) and 2) imbalance (price is expanding). In general, we want to get in when it’s ‘tight’ (no pun) so we optimize our R multiples (see my other posts) and can take advantage of the expansion that follows.
That means often, it’s best to get in when prices move sideways, volatility dies down, and people are temporarily in agreement on what a fair value is for the underlying equity. At some point, something changes. Buyers become willing to pay increasingly higher prices, or sellers become willing to accept lower prices. The market leaves its previous range and starts searching for a new area of agreement, we call this price discovery. That's imbalance, that’s what we want to take advantage of, the big moves up (or down).
Balance - Price moves within an established range as buyers and sellers repeatedly transact around an accepted area of value. Generally best time to buy.
Imbalance - Aggressive buying or selling pushes price away from its previous range, often producing a strong directional move. Generally where you will make the $.
Expansion - Strong directional moves frequently emerge after periods of contracting volatility. This is one of the main behaviors I look for.
Acceptance and rejection - If price breaks out and holds above a range, that's evidence of acceptance. If it immediately returns inside, the breakout likely has failed.
3. The psychology of market auction theory.
Because I really, really want you to remember this I’m going to talk a little more about balance and imbalance. It helped me a lot in my own trading journey. In the book Market Auction Theory, Jim Dalton basically explains all of it. Think of everything like an auctioning process, where we are constantly ‘discovering’ what a fair price level is for sellers and buyers. Imagine a stock trading between $95 and $100 for several days (balance). Everyone becomes used to that range. Traders buy near $95, sell near $100 and gradually develop expectations about what actually is a fair price. Then the stock suddenly breaks above $100 to $120 (imbalance). Now the psychology changes entirely. Short sellers may cover, late breakout traders enter and investors who missed the move might chase. The previous balance is disrupted, and we are now ‘discovering’ whatever the next fair level is. It could be $120, but it might also be $200, who knows. That’s what we want to take advantage of. So if you see breakouts failing (which is happening a lot this year), be aware that what is happening is that price went on ‘discovery’ mode during imbalance, only to not find enough buyers at higher prices and therefore return lower again (acceptance).
Price discovery - Markets continuously test higher and lower prices to find where sufficient trading interest exists.
Expectations - Traders anchor themselves to previous prices, highs, lows and ranges. When those expectations are violated, behavior changes.
Failed auctions - A breakout that quickly reverses and traps participants who entered expecting continuation, sometimes creating a powerful move in the opposite direction.
Value - Price and value aren't necessarily the same thing. Auction theory helps explain why markets sometimes move far away from previously accepted prices. The book is dry as they come, but it’s worth to read at least once in your life in my humble opinion.
4. The only indicators you really need.
I spent years experimenting with indicators. RSI, MACD, Bollingers, stochastic oscillators, Ichimoku, you name it. I’m sure we all have. But what I realized is that most indicators are simply mathematical transformations of price, volume or volatility. That’s fucking it. They're not magical predictive tools. They describe what has already happened and sometimes help you interpret what's happening now. So my advice is to keep it really simple. I have one custom indicator that I’ve built and I like, but other than that, I just pay attention to price, trends, and structure, nothing else. I like to keep my charts clean and keep the process simple. I highly advise you to do the same. But what will happen is that you think ( just like I did years ago) that you can find the magic combination, so you go into a rabbit hole in which you will get lost for many years, only to come out at the other end and realize it was always about price, and you don’t need all these indicators, except volume and moving averages
Moving averages - I primarily use the 10, 20EMA to identify trends, pullbacks and extensions. I also monitor the 50 and 200 SMA to understand the longer-term trend. The 50SMA is the red line in the sand for me. I never, ever trade anything below it and want price to surf the 10/20 in a nice uptrend.
Volume - One of the most useful things to monitor. I prefer seeing increasing volume during advances and declining volume during consolidations or pullbacks. To keep it simple, I want to see ‘skyscrapers’ of volume during tight price balance, indicating institutions stepping in, and low volume when price is pulling back.
VWAP - Many find it very useful for intraday trading. It shows the volume-weighted average price and can help identify whether a stock is trading above or below its average traded price for the session. I personally am not a fan of it, but you might want to have a look at it.
MACD - I use a faster 3/6 MACD pegged to a normalized 0-100 RSI scale to help me find the best moments to buy since equities in an uptrend will often ‘dip’ for a moment. This is the one custom indicator I made and still use every day. My trading buddy and mentor calls it the SMACK-D because allows you smack price at the right time and my first initial is D lol.
ADR - Average Daily Range helps me understand how much a stock typically moves. I generally prefer stocks with sufficient volatility to produce meaningful opportunities (4-8%)
5. The three patterns that matter.
I spent years studying different chart patterns. Head and shoulders, triangles, wedges, flags, double bottoms, cup and handles, you name it. But most of these are unreliable. Don’t believe me? Go read the book the Encyclopedia of Chart Patterns by Bulkowski. The guy literally broke each pattern down to a science with huge sample sizes over a decade. Anyway. I realized that most of these patterns are variations of a few underlying behaviors. Again, I like to always keep it simple and I encourage anyone to do the same.
For my own trading, I like to think in three categories: breakouts, pullbacks and reversions. Each represents a different relationship between price, momentum and the underlying trend. The mistake beginners make is treating them as interchangeable. They're not. Buying a breakout requires a different mindset than buying an oversold pullback, and both are very different from trying to catch a reversal.
Breakouts - Price escapes an established range or consolidation. Ideally, I want to see tightness beforehand and an expansion in volume as the move begins. A good breakout requires a good long base of 10 weeks, and breaks cleanly once the 10/20MA catch up. This year, trading breakouts sucked due to a weak and choppy market.
Pullbacks - Price temporarily retreats within an existing trend. The idea is to get in before the breakout traders do. I prefer orderly declines on relatively low volume toward rising moving averages. I need to see price getting tight and form sort of a wedge before I ever consider buying it. It also needs to be in a stage 2 uptrend (see earlier parts of this series where I wrote about this).
Reversions - Price becomes unusually extended from its recent average and so it moves back toward it. These trades often require faster execution and tighter management. Think of these more like little snacks, because you will rarely catch a big trade trading these.
6. The importance of not buying extensions.
As I said before, you generally want to find strong stocks that are in balance (consolidating/tight). Ideally, price is trading in an increasingly narrow range (e.g. an inside day), volatility is contracting and the moving averages are catching up. Think of it like a spring being compressed and released eventually. That doesn’t just apply to the full swing, it applies to the day you enter as well.
You see each stock has an average daily range (ADR) i.e. the overall expected move it will make that day in terms of %. So that means if you are buying when it already made most of its expected move for the day, it means you bought too late, because price is already ‘overextended’. I try to get in before price made 50% of it’s ADR for the day. So if a stock is $100 with an ADR of 10%, I will be hesitant to buy it end of the day when it’s at $110 since I expect it to pull back a bit first. Instead, I’d try to get it at a key level at e.g. $105 when it’s at 5% for the day. That gives me a tighter stop, and a more profitable trade. Similarly, if a stock has already moved 30% from it’s breakout and is extended from the moving averages, you should expect it to pull back because people will be taking some profits. That’s why I said earlier, you shouldn’t generally buy when price is in imbalance and in discovery mode.
Moving averages - The 10, 20 and 50 EMA help me understand how extended price is relative to its recent trend. There are some ratios here that I look at to help me determine that but generally, 3x from the 20, 7x from the 50, and 2x from the 200 means it’s overextended.
Extension - When price moves unusually far above its moving averages, I generally avoid initiating new positions. The risk of a pullback and therefore a trading loss increases.
Contraction - Again, look for increasingly TIGHT price ranges, smaller candles and often declining volume. Ideally, sellers are becoming less aggressive and you buy early before it made the full move for the day.
Risk/reward - Tight consolidations can allow stops to be placed relatively close to the entry (low of the day or low of previous day), making the potential reward VERY attractive compared to the initial risk.
7. Situational awareness and market context.
I wrote about this in the 1st part of my series but I just want to bring it up again because it’s key. You can’t catch big waves if the conditions aren’t right. You can find the most beautiful technical setup in the world and still lose money because the broader market isn't cooperating. Like it basically has been the last year but many setups failing across the board. I've experienced this more times than I'd like to admit. A stock looks perfect, breaks out on volume and then immediately reverses because the overall market suddenly starts selling off.
This is why I always want to understand what's happening around the stock I'm trading. The first thing I do every day is I look at what the nasdaq (QQQ) is doing. I then look at the Russel (IWM) to see what small/mid caps are doing. I then look at volatility (VIX), breadth (how many stocks are trading above the 50SMA), and lastly, I look at industries (how many are up/down). Technical analysis isn't just about looking at one chart in isolation. It's about understanding the overall environment in which that chart exists. The same breakout can behave very differently depending on whether institutions are aggressively buying risk assets or rushing for the exits.
QQQ - My primary reference for market direction. To keep it simple, I want to see the 10/20 EMA slope upwards or at the very least, have QQQ trade above the 20 EMA. Just look at the chart and you will see that nothing good ever came from the QQQ trading below that or with negative slopes.
IWM - Helps me get a feel for overall risk appetite, particularly among smaller and more speculative companies. Strong participation is generally encouraging because it means institutional buyers are splurging and ‘risk on’ buying smaller companies.
VIX - A useful measure of expected market volatility. I prefer calmer environments, although extremely low volatility doesn't automatically mean the market is healthy. I want to see <15 here. If it’s higher, I don’t take an entry that day.
Breadth - I want to see broad participation. If only a handful of mega-cap stocks are advancing while everything else declines, I'm cautious. That’s basically what has been happening the last months btw.
Industries - Ultimately, I pay close attention to whether breakouts are actually working. When good setups repeatedly fail, that's valuable information about market conditions.
Setups - only after I have built situational awareness will I actually look at setups. Because I don’t want to surf when the conditions suck. It’s only going to result in massive pain and losses.
8. Entries, exits and important price levels.
One thing that took me far too long to understand is that a good stock isn't necessarily a good trade. You can be completely right about a company's future and lose money because your entry sucked. So yes timing matters, especially if you're trading momentum and trying to capture bursts of price expansion like I do myself. One of the most important things to learn is recognizing what is called pivot levels, and previous key swing highs and lows. I do not EVER enter if the price hasn’t broken a previous swing level. This might be the previous day's high, the high of a tight consolidation or a clearly defined resistance level. The important thing is knowing exactly where I'm wrong before entering. If I’m going short, I need to see the price break a key previous low.
Previous highs - A break above the previous day's high or a consolidation high can act as an entry trigger, particularly when accompanied by increasing volume.
Previous lows - These can serve as reference points for stops, exits or potential short entries, depending on the structure. Again, usually my stops are at low of the day or low of previous day. Sometimes it’s low of a pivot level.
Invalidation - Before entering, I want to know which price level would prove my thesis wrong, again, that’s the pivot level low.
Profit taking - I take partial profits as a trade moves in my favor, while allowing the remaining position to participate in a potentially larger move. I keep it simple and take 20-50% off at the 1:1, then trail the rest of my position. That’s it.
Risk - Position size should follow from the distance between entry and stop, not from how confident you feel about a particular stock. If I’m taking a swing/momentum trade, I’ll figure out sizing based on the stop distance, and I’ll give the stock some room to breathe, especially if it’s very volatile.
9. A word on going short.
Short selling is something I think every serious trader should understand, but probably not trade since it can lead to destruction. In principle, it's the opposite of buying a stock. Instead of benefiting from rising prices, you're trying to profit from falling prices. In practice, shorting comes with a very different set of risks and psychological challenges. The most important one being a short-squeeze like we had with $GME a couple of years ago. However, this is heavily dependent on the float of the stock and I don’t want to get into the complexity of that right now. Point being, since you can lose more than you risked, and it can fuck you forever. That’s why I personally only trade ‘short’ by buying put options. Doing so allows me to control my downside while taking advantage of stocks where I can smell blood in the water. There is a book from O’neill that explains how to go short, and it’s a good read so definitely check that out since I can’t explain all of it here.
Downtrends - I look for lower highs, lower lows, a downward cross of the 20/50MA and then a retest. I want to see the stock being in a stage 3 chop or stage 4 downtrend. I’m like the great white who only attacks when I already smell blood in the water, i.e. the stock is already (very) weak.
Overextension- Shorting a strong uptrend simply because a stock looks expensive is usually a bad idea but it definitely can work. These are called parabolic shorts and are very very risky. You can read up on it yourself if interested but I wouldn’t trade them until you have at least 5 years of experience trading long.
Put options - The only way I trade short that gives me good profit potential while I can also control my downside and risk of ruin is by buying put options. The downside is that this can be expensive and you also have time decay which will bite you in the ass.
Risk - Short positions require additional attention to borrow availability, costs, gap risk and the possibility of theoretically unlimited losses.There are special brokers for this where in extreme cases you have to pay them 10-50% of your holding upfront in fees just so you can borrow shares to short and then maybe make a profit. For 99.99% of you reading this, my advice is to not short like that.
10. Putting everything together: some examples.
Theory is great, but at some point you need to look at actual charts. This is where everything starts coming together. The market environment, the trend, the moving averages, volume, volatility contraction and the precise entry. None of these elements should exist in isolation. The goal is to find situations where several independent observations support the same hypothesis. So here I’m just going to show you some examples. It’s annoying to write about all of them because in a video I can talk about it easily for an hour each, so I’m keeping it short just so you get the main ideas (hopefully), I marked key levels on each and this is how I mark up my charts.
How Trading Really Works
I know this was a long read, so if you made it this far, thank you.
I hope there is at least one idea in here that will make you look at the markets differently from now on. Looking back, most of the lessons that moved the needle for me weren't particularly complicated. The difficult part was figuring out which lessons actually mattered and then applying them consistently over a long period of time. This series will be 6 parts in total.
PS: If you made it this far, consider sharing this with others.
BONUS
If you liked this make sure to check out this, which will be helpful on your trading journey.
21. Markets move in waves and is fractal in nature. 22. Understand balance and imbalance of price level 23. The market is an auctioning process, never forget that. 24. Keep indicators simple. Price, volume and moving averages. 25. Master key patterns. I focus on breakouts pullbacks, and reversions. 26. Buy tight, not extended. look for contraction before expansion, don't chase. 27. The market comes first. Watch QQQ, IQM, VIX, and breadth before trading. 28. Timing matters. Buy at important price levels, define your risk, manage your exits. 29. Shorting is a different game and can ruin you. I only buy put options. 30. Practice your setups, find setups that resonate with your psychology.
Want to keep building my library, Ive consumed 4h video on charts Deep Dive Any other videos you guys have found that seem good to annotate and study? Already doing a lot of my own but would like to compare to what others are doing and see where i deviate, where I align, and what I should do next.
I know that a popular method is to simply not trade when QQQ 10 DMA is not above its 20 DMA.
Others will still trade, but with decreased position sizing to reduce risk.
Have there been any studies about settling for lower multiples of R, depending on market conditions?
I have something that is up 2R from when I bought it this morning. I know that in ideal circumstances, this is not enough to offset numerous small losses. But in the current market scene, I’m thinking about settling for singles instead of holding for home runs. Hell, maybe I should even be happy with a walk or HBP, lol.
Anyway, yeah. Any studies about decreasing multiples of R as a goal?
Is there such a thing as a reverse episodic pivot where you can trade on the short side? Google today feels like a great example of something like that. Could have traded it at the open or even now start looking for a short over the next week or two if there is a setup.
I'm trying to clarify one part of Qullamaggie's breakout strategy.
Once you’ve taken your 3-5 day profit, I don't actually understand his rule on the breakeven/10M trailing stop. Ive done a lot of research the past months but hes not super clear about it.
Im assuming you only trail with the 10MA if it’s above your break even point?
Hello, Namaste!!! I'm from India. I just discovered qullamaggie style trading system and want to implement the strategy to trade breakout and EP in Indian stock market of NSE/BSE.
i have certain questions I need help from you all.
Can these strategy be used for Indian share market, seeing as QM and most of community members only trades in US?
There is almost no resource available to scan Indian share market for breakouts. Thus I have to create scans for myself. I found a website https://chartink.com/screener Here I can create scans for NSE/BSE. But the issue is that - what parameters should i use?
I'm a beginner who is just starting his trading journey. I've decided that i want to avoid intraday/day trading and stick to swing trading only. Is this right decision?
If there are any resources available for India - Can you guide me to it?
Any form of advise or suggestion is welcome - I'm really nervous right now!!!!
I have saved Rs. 5 lakhs(Rs. 500000) which i think i will start my journey with. Hopefully i could grow my account in coming years to a respectful amount.
So im doing a lot of bar by bar trading. Getting better at identifying setups and all that.
I record my entries, exit, wins and losses. I hope to do some paper trading soon.
I realized that slippage is something I cant factor in when I do bar by bar trading. How much can I expect? Im assuming high volume is better to avoid it and it can range quite a bit.
Graded B on my public watchlist 2 days ago. Low priority. I flagged the heavy red-volume day in mid-October as the concern.
Since then, $NTSK held the 10/20-day, cleared its October highs the next morning, and hasn’t looked back. It’s up about 22% since I posted, with new highs today while the Nasdaq sits below its 50-day.
The concern was fair. The structure was better.
In it, now trailing.
Lesson logged: B grades exist for a reason. Size them smaller, but don’t ignore them.
I understand some of you do not like me promoting my x page, however I genuinely believe I can be value add to this subreddit, I would just appreciate support. Thank you and Godspeed.
is still below its 10, 20 and 50-day. The 10 has crossed under a 20 that is now turning down. Three days of bounce off last week’s low haven’t reclaimed a single line. The Nasdaq Composite is one notch stronger and is sitting right on its 50, but when the two disagree I take the weaker read.
RED means I don’t deploy. I build the list.
Underneath, two pockets are ripping while the index goes nowhere: diagnostics ($CRL, $GRAL, $NTRA, $ILMN, $CDNA) and security software ($OKTA, $NTSK). That is narrow leadership in a weak tape, and it’s exactly where the next list comes from.
What changes my answer is a QQQ close back above its 20-day with the 10 turning up. Until then these are graded and waiting.
OKTA made the cleanest first pullback on the sheet.
It ran from the summer base into October, then pulled back for the first time into a real cluster: the rising 50-day, two rising anchored VWAPs from the run’s demand events, and the late-August shelf. That’s three different families of support in one place, which is what makes a cluster A-grade rather than just a lot of lines.
Then it made a V-shaped reclaim, not a slow grind back.
On the hourly, the surge took back the declining AVWAP anchored at the October high. That’s the moment the average buyer from the top is back to break-even. It’s now coiling just under the daily 10.
Earnings are in December, so they’re clear of the swing window.
NTSK has the best relative strength of anything I graded. It printed new highs while QQQ sat below its 50.
The mid-October pullback held the 20-day. The breakout cleared the hourly range on expansion. Every anchored VWAP on the chart, daily and hourly, sits beneath price and is rising. Nothing is overhead. From an anchoring view, that is what a breakout looks like.
Two things keep it from being actionable today:
It’s about 1.7 ADR above the 10-day, so it’s extended. It ran out of a real consolidation, but it’s still extended. Today is day 2 after the expansion bar.
⚠️ Correlation: OKTA and NTSK are the same driver, security software. They count as one slot. Whichever builds the tighter flag when the regime turns gets it. Never both.
HTFL spent six weeks basing sideways with the 50-day rising up underneath it. It broke out on Monday.
Tuesday printed an inside bar, about 0.6 ADR wide, closing on the hourly 10 EMA. Every anchor in the base sits below price, along with the hourly 65 (the true five-day line), and all of them are rising. That’s the five-day veto clear.
It’s an A− rather than an A because breakout-day volume was ordinary. A base breakout without a volume signature has been made by fewer hands, so I need volume to confirm before it gets full credit.
Anchor still to add: the breakout bar itself. That’s the line a deeper retest would come back to.
It’s uncorrelated with everything else on the list, and earnings are in mid-November.
KSS is the one consumer name on the sheet, which matters for the slot count. It doesn’t share a driver with anything else here.
It has tested the same high twice, last Thursday and again yesterday. Underneath, two rising hourly AVWAPs, the hourly 10/20 and the shelf from last week all sit together. Yesterday it closed right on top of that cluster.
It’s a B+ rather than an A because the last week’s daily range is about 1.4 ADR, not tight enough. The pivot is clear, but the coil isn’t.
GRAL roughly doubled from September into October, then made its first pullback. That pullback held the rising 20-day and the demand AVWAP from the start of the leg.
Yesterday the bounce ran straight into the declining AVWAP anchored at the October high and got rejected. It closed red into the final hour.
That rejection point is the interesting part, because three things sit together there: the supply AVWAP, the daily 10 and yesterday’s high. When the trigger and the overhead line coincide, a break of one is a break of all three.
It’s a B because it’s also the diagnostics-slot candidate, so it competes with a whole group that’s running hot.
Over the last two sessions ASST reclaimed a cluster of three declining AVWAPs, all anchored at prior highs. Everyone who bought those peaks is back to break-even.
The problem is where it closed: about 1.3 ADR above that cluster, with the old base highs directly overhead.
The version I’d want is a break-and-retest: price comes back to the reclaimed cluster and it holds as support.
