How to Day Trade for a Living: Tools, Tactics, Money Management, Discipline and Trading Psychology

Aziz, Andrew
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Strategy 1: ABCD Pattern
The ABCD Pattern is one of the most basic and easiest patterns to trade, and it is an excellent choice for beginner and intermediate traders. Although it is simple and has been known for a long time, it still works effectively because so many traders are still trading it. You should do whatever all of the other traders are doing because a trend is your friend. A trend may very well be your only friend in the market.
Let’s take a look at this pattern in Figure 7.1:
Figure 7.1 - Example of an ABCD Pattern .
ABCD Patterns start with a strong upward move. Buyers are aggressively buying a stock from point A and making constantly new highs of the day (point B). You want to enter the trade, but you should not chase the trade, because at point B it is very extended and already at a high price. In addition, you cannot say where your stop loss should be. You must never enter a trade without knowing where your stop is.
At point B, traders who bought the stock earlier start slowly selling it for profit and the price comes down. You should still not enter the trade because you do not know where the bottom of this pull back will be. However, if you see that the price does not come down from a certain level, such as point C, it means that the stock has found a potential support. Therefore, you can plan your trade and set up stops and a profit taking point.
The above screenshot, marked as Figure 7.1, is of Ocean Power Technologies Inc. (ticker: OPTT) at July 22, 2016, when they announced a public offering of shares and warrants (warrants are a tool used to purchase shares in the future at a set price) which was expected to bring in gross revenue of some $4 million. (There’s a fundamental catalyst! Remember Chapter 2?)
The stock surged up from $7.70 (A) to $9.40 (B) at around 9:40 a.m. I, along with many other traders who missed the first push higher, waited for point B and then a confirmation that the stock wasn’t going to go lower than a certain price (point C). When I saw that point C was holding as a support and that buyers would not let the stock price go any lower than $8.10 (C), I bought 1,000 shares of OPTT near C, with my stop being a break below point C. I knew that when the price went higher, closer to B, buyers would jump on massively. As I mentioned before, the ABCD Pattern is a very classic strategy and many retail traders look for it. Close to point D, the volume suddenly spiked, which meant that many more traders were jumping into the trade.
My profit target was when the stock made a new low on a 5-minute chart, which was a sign of weakness. As you can see in Figure 7.1, OPTT had a nice run up to around $12 and then showed weakness by making a new low on a 5-minute chart at around $11.60. That is when I sold all of my position.
Figure 7.2 is another example, this time for SPU on August 29, 2016. There are actually two ABCD Patterns in this example. I marked the second one as abcd pattern . Usually, as the trading day progresses, volumes become lower and therefore the second pattern is smaller in size. Please note that you will always have high volumes at points B and D (and in this instance also at points b and d).
Figure 7.2 - Example of ABCD Pattern and abcd pattern.
For this 2020 edition of my book, I wanted to ensure that the ABCD Pattern is still a valid strategy. As part of my investigations, I asked one of our most senior traders in the community, Aiman, to provide me charts of some of his recent trades. Aiman is a medical student in Russia who trades the U.S. market in the evening. He is known to be a genius in the ABCD Pattern Strategy! He provided me with two examples as shown below in Figures 7.3 and 7.4.
Figure 7.3 below shows Aiman’s trade on PG&E Corporation (ticker: PCG) on April 8, 2020, as marked on its 1-minute chart. I did not mark the ABCD points on this chart, but if you want to test your knowledge, please send your answer to me at andrew@bearbulltraders.com or to Aiman himself at aiman@bearbulltraders.com . Do include your:
We will let you know if your response is correct or not! 
Figure 7.3 - Example of an ABCD Pattern trade on PCG on April 8, 2020. What should be the entry price, time of entry, and stop loss price? Email your answer to andrew@bearbulltraders.com or to Aiman at aiman@bearbulltraders.co m
Another example is a trade Aiman had on American Airlines Group Inc. (ticker: AAL) on June 15, 2020. The airline and cruise line sector was very volatile during the first months of the COVID-19 pandemic as the future of travel was quite unclear. American Airlines was one of our favorite stocks to trade. Figure 7.4 below is AAL’s 5-minute chart and you will see that I marked three ABCD Patterns in it for you to review. Interestingly, point C fell on VWAP, which acted as a strong support during Aiman’s trades.
Figure 7.4 - Example of ABCD Patterns on AAL on June 15, 2020 .
To summarize my trading strategy for the ABCD Pattern:
  1. When I observe with my scanner or I’m advised by someone in our chatroom that a stock is surging up from point A and reaching a significant new high for the day (point B), I wait to see if the price makes a support higher than point A. I call this point C. I do not jump into the trade right away.
  2. I watch the stock during its consolidation period (I’ll explain this term in the next strategy). I choose my share size and stop and exit strategy.
  3. When I see that the price is holding support at level C, I enter the trade close to the price of point C in anticipation of moving forward to point D or higher.
  4. My stop is the loss of point C. If the price goes lower than point C, I sell and accept the loss. Therefore, it is important to buy the stock close to point C to minimize the loss. Some traders wait and buy only at point D to ensure that the ABCD Pattern is really working. In my opinion, that approach basically reduces your reward while at the same time increasing your risk.
  5. If the price moves higher, I sell half of my position at point D, and bring my stop higher to my entry point (break-even).
  6. I sell the remaining position as soon as my target hits or I sense that the price is losing steam or that the sellers are acquiring control of the price action. When the price makes a new low on my 5-minute chart, it is a good indicator that the buyers are almost exhausted.

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