Here’s a trade I was watching set up, but had to leave before the third candle finished. I would have taken this trade for sure, and probably jumped out way too early! But, it shows how the paintbars are starting to come together a bit.

Not all examples are this nice, of course!

One of these days I’m gonna video a live trade… it’s just that I’m paranoid about it affecting my performance, either via technical problems, or just being on camera affecting my judgment (obviously I would want my live trade to be a winner, you know?).

I wanted to show you how I’ve been selecting trades the last few weeks. It’s a multi-step process. The paintbars alert me to possible entries on my lowest level charts. Then, if I like what I see, I go from the top down and make sure all my higher-level charts agree. Then, I go to the L1 bid/ask and watch the tape to get into the trade.

Here’s a screenshot of my entire charts screen, with notes on all the various types of charts I use…. it helps put the video below into context (it’s showing the same trade that the video describes).

There’s a 6-month daily PnF chart, which is mainly for the trend. There’s two intraday PnF charts… a high-level one and a low-level one. The high-level one always shows two days of action. The low level one just shows whatever is comfortable to view (about 30 bars looks good to me at that size). The lowest-level chart is the 3-minute candlestick chart. It has a ton of indicators loaded, but most are hidden because they are only there to support paintbars. I like to make the paintbars do all the work, if I can, and stare at this chart as little as possible. I only show 2 hours of action on that 3-minute chart, because I don’t want to fall into the habit of trading entirely off the time candles. I want to force myself to use the higher-level PnF charts for higher-level information.

As you can see… I can only look at one stock at a time with this setup, so I try to keep my watchlist pretty small. I cycle through them and try to remember which ones look ripe to set up soon. I visit those more often, and do a full cycle through the charts maybe only once an hour or so. There is a little room over on the right side of the screen to put charts of stocks I want to track closely, but I rarely do that.

Here’s a video where I talk about how I use the lowest level, time-based chart to spot a trade. Refer to the screenshot above for how all the charts fit together. It takes a long time to explain in my ridiculous rambling style, but doing the actual checking takes only a split second. That’s a good thing, because you have to be FAST in these markets!

So, inspired by the kinds of indicators I’ve been seeing on the EOTpro.com videos, I played around and created some paintbar indicators this weekend. They aren’t the same strategy as in the videos, but I got ideas like color coding various signal ’strengths’ so I can differentiate the quality of the setups better. Plus, it gave me a chance to play with some QT indicators that I’ve never used, which was fun.

Today, I was inspired to try to use some of my new paintbars, because my connection to scottrade was wacky. The d/l speed dips to 0.00 kb/s for a few seconds, followed by a burst of traffic. Result? Everything freezes, and then it plays what I missed at triple speed until it catches up. Not exactly a prime scalping environment!

So, the strategy with the most impressive non-scientific eyeballed 2-days of data “backtest” was a kind of mean-reversion idea. It basically tries to decide when a stock is primed to return to its recent average price. Not revolutionary, I know. Here’s how the first trade went… it was scary!

First, the daily PnF… Atheros Communications, Inc. (Nasdaq: ATHR) was in such a clear uptrend that I didn’t even bother drawing the arrow for you. If you can’t see it, get your eyes checked:

It gapped up today, and sold off at the open. A couple candles past the premarket, it turned, and I got a blue arrow pointing up. This is the ‘medium strength’ (gray being weak and bright green being strong) buy signal. I’m still playing with the details, but the basic idea is that the signal means “this stock has moved far (in a std. deviation sense) from value, quickly, and has good probability of retracing.”

The target would be the blue line (a T-3 moving average) at minimum. Since we were going long, with the overall trend, I was going to look for more than that. The stop would be below the recent swing low. Here’s how the trade panned out:

Whew! The markets were acting all kinds of skittish (the TICKs were pegged negative for most of the first hour) because they were near the highs from Friday. As you can see, the T-3 average target was starting to drop, so when I got a push through it I sold my position for a 0.55 R gain. I think it was the right choice. As I write this, the price has fallen back to 33.34.

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