Diamonds
in the
Rough
DIAMOND TRADES
Contents
Fibonacci Retracements
3
8/21 EMA Strategy
10
EMA Gap Strategy
17
Fading Stocks at the Open with Unusual Whales
23
VWAP Strategy
26
Think Or Swim Tips & Tricks
33
YouTube Educational Videos
40
Fibonacci Retracements
As a new trader fibs can seem like an intimidating tool that only
the most experienced traders use, but in reality they’re very
simple and can be extremely useful.
What are fibs and how can you use them in your trading?
Fib retracement levels are key levels in-between a swing high and low where price action
may reverse.
Essentially, they represent levels of significance between a recent high, and a recent low.
First, the math behind fibs
Fibs are derived from the Fibonacci sequence, a mathematical sequence of numbers in
which the sum of the previous two numbers equals the next.
Ex: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, ... you get the point.
In the Fibonacci sequence, the ratio of any number against its preceding number is
generally 1.618.
Ex: 34/21 = ~1.618
Ex: 55/34 = ~ 1.618
This is called the golden ratio - Golden ratio mathematically represented: ((1+5^1⁄2)/2).
The fib retracements we use in trading are the golden ratio taken to different negative
powers:
((1+5^1⁄2)/2)^-1 = .618 ((1+5^1⁄2)/2)^-2 = .382 ((1+5^1⁄2)/2)^-3 = .236
There's tons of resources on this phenomenon and how it affects our world on Youtube;
highly encourage taking a look.
How do we use this in trading?
First step in applying fib levels is to find a recent high and a recent low. Then you plot
your fib levels and Voila! Now you’ve got 5 key levels of support and resistance in
between the top & bottom of your range.
Fibs can be used on any time frame. Use the daily to find macro levels of support/
resistance. Use the hourly to find shorter-term levels of support/resistance. Use the 5m
to find intraday levels of support/resistance.
Its all about what your looking for and your trading style. How I use fibs:
Im looking for a large move that is currently retracing, then looking for a
rejection .50 and/or .618 retracement levels for a continuation of the original
trend.
I will then take calls/puts with my 1st target at the .382 & 2nd target at the 0
level (trend bottom)
Ex1: Daily chart short $SPY 2/10
$SPY weakness all through January with strong low put in on the 24th. Identified swing
high and low & set my fibs. Several .618 rejections gave signal for puts when ran over
1000% into the following day.
Ex2: Daily chart long $XOM 2/24
$XOM showing solid strength over the course of several days. Identified swing high and
swing low & set my fibs. .618 retracement gave entry signal for calls which paid over
100%
Ex3: 5m chart short $QQQ 4/12
$QQQ general weakness setting lower highs and lower lows intraday. Identified swing
high and swing low & set my fibs. .618 rejection gave entry signal for puts which paid
over 200%
Ex4: 5m chart long $SNOW 4/11
$SNOW had a massive $10 move at the open, and then began to retrace. Identified
swing high and swing low & set my fibs. .618 reversal gave entry signal for 215 calls
which paid over 75%
How it works:
1.) Your playing levels of significance for a reversal. If the play works you have
great risk:reward as you can potentially catch the top/bottom of the move
2.) When people code algorithms to trade, they code their biases into the
algorithms.
Fibs are based on a phenomenon found in human nature so naturally this phenomenon
gets coded into the algorithms, creating a reenforcing cycle of algorithms (and people)
seeking out these price levels.
I encourage you to do some backtesting of your own, as people are often surprised by
how accurate fibs can be.
This barely scratches the surface of how fibs can be used in trading.
As always, no indicator/strategy works in a vacuum. I use this strategy in
conjunction with general market themes, moving averages, options flow,
and other key levels to identify high probability trades with good
risk:reward.
8/21 EMA Strategy
I take ~75% of my trades using one indicator: Moving Averages.
They’re a great tool, but can get you into trouble if used
improperly.
What are moving averages and how do I use them in my trading?
A moving average (MA) is a graphic representation of the average closing price of the
last x amount of candles. For example, the 8 MA will show you the average price of the
last 8 candle closes. 21 MA gives average price of last 21 candle closes etc.
MA’s are time based; when you change timeframes, the MA will also change. On a daily
chart, the MA gives the average of the last x daily candles, on a 5m chart, the MA will
return the average of the last x 5m candles.
THERE IS NO RIGHT OR WRONG MOVING AVERAGE
I use the 8 and 21 MA, some use the 9/20, others use the 15/50. It doesn’t matter.
Experiment and find what MA and timeframe works best for you. Same for time frame. I
use the 5m, but MA's can be used on any timeframe.
I use the 8/21 MA on the 5 minute chart to identify trends. If the 8 EMA is above the 21
EMA, that signals a short term bullish trend. If the 8 is below the 21, that signals a short
term bearish trend
Personally, I also use vwap in this process. 8EMA > 21EMA > vwap = bulls in control.
8EMA < 21EMA < vwap = bears in control. As a day trader, this helps me avoid trading
against the trend.
Moving averages will act as a moving level of support and resistance on your chart.
When an up-trending stock pullback to the EMA’s, the price is at support. When a
down-trending stock retraces to the EMA’s the price is at resistance.
As a day trader, I want to avoid chasing the move. Stocks don’t go straight up or straight
down, they move in trends. Moving averages can help me identify where an existing
trend may continue.
The Strat (Bullish)
For me, an A+ bullish setup using this strategy is when price is trading above the 8
EMA, which is over the 21 EMA, which is over vwap. I am waiting for a retest of my 8
EMA and looking to see buying pressure (ideally in the form of a hammer candle)
After confirming as support, I look to enter calls targeting either HOD or my next
resistance. If price breaks the 8 and pulls back to the 21, I’m looking for the same thing
to happen there.
The Strat (Bearish)
An A+ bearish setup using this strategy is when price is trading below the 8 EMA, which
is under the 21 EMA, which is under vwap. I am waiting for a rejection of my 8 EMA and
looking to see selling pressure (ideally in the form of an inverted hammer candle).
After confirming as resistance, I look to enter puts targeting either LOD or my next
resistance. If price breaks the 8 and retraces to the 21, I’m looking for the same thing to
happen there.
Crossovers
When the 8 EMA crosses the 21 EMA on my 5m chart, I take that as a signal that the
short term trend has flipped.
This shifts my bias from long to short and vice versa. After the crossover, I’m looking to
play the above strategy for a continuation of the reversal.
Crossovers ARE prone to fakeouts. To avoid this, I will sometimes use the 10m chart to
see what the larger trend is. If the 10m chart is giving me a different signal, I’ll likely sit
on my hands until I receive additional confirmation.
Example of a crossover fakeout:
How It Works
Stocks move in trends. In my opinion, adding at support in an uptrend & resistance in a
downtrend is the best way to manage risk. EMA’s provide both support/resistance and
trend identification.
If you’re struggling using moving averages, don’t give up. It took me about a year to
develop a strategy around it + trust that strategy.
As with any indicator/strategy, nothing works in a vacuum. I use ema’s in
conjunction with general market themes, fib levels, options flow, and other
key levels to identify high probability trades with good risk:reward.
EMA Gap Strategy
In volatile markets, overnight gap ups and gap downs are
common. Nobody likes charting for hours at night, only to have
a gap up or gap down completely ruin their plans.
Here’s a simple strategy I use to play gaps at the open in either
direction
A gap is a phenomenon on the daily chart where the opening price of the stock is
significantly above (gap up) or significantly below (gap down) the closing price from the
previous session.
I prefer gaps of at least 0.5% for this strategy.
For this strategy, I use the 8 /21 EMAs, with EXTENDED HOURS OFF.
EMA’s are time based indicators; keeping premarket on gives me moving average data
from premarket trading whereas disabling them gives me data from the end of the
previous day.
This is not to say premarket action is not important; it can have significant implications
on intraday price action specifically in the indices.
The goal
I am looking for a reversal of the price action at my moving averages, and then playing a
continuation of the momentum in the direction of the gap.
The strat (bullish):
On gap ups, I want to see the stock flush at the open. Once the stock reaches my 8 EMA
from the previous day, I am looking for confirmation of support (via a hammer candle).
Then, I want to add calls targeting HOD or additional resistance.
Ex 1.) $AAPL (4/12, 2min chart)
$AAPL gapped up at the open, I noticed the EMA acting as support on the 2m and an
inside candle form, I took this trade on the break of the inside candle setup. The 170
calls ran about 90%
Ex 2.) $SNOW (4/12, 5min chart)
This is a classic example of people getting trapped after fomo-ing into a stock at open.
The idea was correct, but impatience may have lead to a stop out as IV crushed calls.
An EMA entry would’ve returned 200% with minimal drawdown.
The Strat (bearish)
On gap downs, I want to see the stock rally at open, once the stock reaches my 8 EMA
from the previous day, I am looking for confirmation of resistance (via inverted
hammer). Then, I want to add puts targeting LOD or additional support.
Ex 1.) $NVDA (4/11, 5min chart)
$NVDA gapped down over the weekend breaking key support levels on the way, leading
to many being bearish at open.
Waiting for the 8 EMA test avoided the IV crush during consolidation and returned
~40%
Ex 2.) $SNAP (4/11, 10min chart)
$SNAP gapped down at the open with the rest of tech. $FB was selling off on bad
earnings which is a bearish indication.
Adding too early would have got you stopped out on the gap fill, but adding at EMA
resistance gives a high r:r entry returning over 90%
How it works:
1. In many stocks, only institutional investors can buy/sell in the overnight
session. Because of this premarket action can often spill over to the price action
we see at the open as retail and other traders come & try to catch the play.
2. You’re playing a reversal with this strategy, if the stock runs all day, you may
catch the high/low of the move. If it doesn’t, you get stopped for a small loss.
Risk < Reward
3. When playing weekly options, a gap up/down will increase the IV on options
contracts right at open.
The IV will then fade throughout the day. Use this strategy to avoid the IV crush
while still catching the move.
IMORTANT:
To increase the effectiveness of this strategy, pay attention to the gap ups/downs that
have high premarket volume and news. This will add to my conviction in either
direction, as this shows increased interest in the stock.
Additionally, when this strategy is combined with a gap fill (price pulls back / retraces to
previous days close), I’ve noticed that it tends to increase the strategy’s efficacy.
I trade this strategy using the 2m & 5m chart, but have seen it work on the 1m and 10m
charts. Its all about personal preference. Backtest the strategy and see which suits your
style.
Most brokerages will offer a list of high volume pre-market movers, but you can also
find this information in places like Benzinga Pro, MarketWatch and Bloomberg. Just
Google “premarket movers”.
As with any indicator/strategy, nothing works in a vacuum. I use this
strategy in conjunction with general market themes, fib levels, options flow,
and other key levels to identify high probability trades with good
risk:reward.
Fading the Open with Unusual Whales
As traders many of us prefer playing calls because were
conditioned to be optimists (stonks only go up)
However, trading puts at open on the right setup can be equally as
profitable
While making the Kane Capital watchlist I checked $SQ flow on Unusual Whales. This is
a necessity when making watchlists.
There wasn’t much there but what I did see was bearish. Didn't put it on the watchlist,
but made a mental note.
Today $SQ gapped down at open. When Im bearish on a stock that gaps down, I WILL
GENERALLY WAIT FOR THE GAP TO FILL. This usually provides as this provides a
better r:r entry. Mentioned this premarket.
As expected $SQ rallied at open, filling the gap, then started to show fatigue. This is
when I entered the 165p at .72
$SQ continued to drop, got a bounce at VWAP, then knifed to low of day where I took
my first scales.
Again I checked Unusual Whales for flow confirmation, tons of short dated put buying.
After breaking low of day, $SQ flushed to intraday levels from yesterday (165ish) where
I exited for +219%
Key points:
• Puts at open can pay just as well as calls at open
• Wait for the initial pop before blindly fading a stock
• Once gap is filled, be on watch for weakness/fatigue to enter puts using high of day as
your risk
• Unusual Whales can be used for flow confirmation before and during trade
As with any indicator/strategy, nothing works in a vacuum. I use this
strategy in conjunction with general market themes, fib levels, options flow,
and other key levels to identify high probability trades with good
risk:reward.
VWAP Strategy
VWAP is one of the simplest, most common indicators amongst
retail and professional traders - however using it in trading can
be challenging.
What is VWAP, and what's my strategy for taking trades using
VWAP?
What is VWAP?
VWAP stands for volume weighted average price.
It gives you the average price that market participants paid for a stock on a certain day,
weighting that average by the volume the stock was trading at.
Imagine:
A stock opens at $10 and closes at $20. The “average” for the day is $15.
But what if 90% of shares were traded at $11?
The average should be closer to $11, because that's where most of the volume
occurred.
VWAP accounts for volume to give the TRUE average price.
Unlike EMA’s, VWAP is a volume weighted indicator rather than time weighted. Thus,
VWAP will be the same regardless of time frame. Also, VWAP is the same for everyone,
whereas two traders may have different moving average lengths.
Style:
I do not have upper and lower bands on my vwap, I feel it clutters my chart. I do use
anchored VWAP with @trendspider which anchors the vwap to a specific day/time, but
for today we will just cover standard vwap (length: 14) which resets every session.
The Strat (bullish):
I’m looking for a stock that has rallied at the open on strong volume and good news. Im
waiting for a pull back to VWAP, and adding over the open of the candle that tested
VWAP.
This gives me a solid entry at a level of intraday support, targeting HOD.
Example 1: $NIO (4/13) 21c +157%
Example 2: $WMT (4/20) 160c +60%
The Strat (bearish):
I’m looking for a stock that has dumped at the open on strong volume and bad news, Im
waiting for a retracement to VWAP and adding under the open of the candle that tested
VWAP.
This gives me a solid entry at a level of intraday resistance, targeting LOD.
Example 3: $QQQ (4/20) 340p +180%
Example 4: $AMD (4/20) 93p +90%
How it works:
1. VWAP is an extremely common indicator, as such many traders are using it as
a spot to enter and exit positions. This can cause stocks that were trending to
resume their trends.
2. A professional trader’s ability to get institutions into & out of positions is often
measured against VWAP. As such, traders with large positions to fill are
watching vwap to enter/exit positions. This buying/selling volume can create
moves you can take advantage of
3. You don’t have to do any predicting with this strategy.
You can avoid the morning chop, and identify stocks that already have interest to the
long/short side and play those, instead of guessing which stocks will be movers that day.
VWAP can be a blessing and a curse.
Market Makers are aware that everyone is watching the same VWAP, so its not
uncommon to see funky price action around this level.
For this reason I like to combine this strategy with additional TA + options flow.
As always, no indicator/strategy works in a vacuum. I use this strategy in
confluence with with overall market themes, exponential moving averages,
options flow, and other key levels to identify high probability trades with
good risk:reward.
ThinkOrSwim Tips & Tricks
Almost half of people I’ve run into in trading use ThinkOrSwim
in some capacity. For all traders, TOS can be an immensely
powerful platform, but they do a poor job of highlighting their
most useful tools. Here are 10 tips & tricks I use to get the most
out of ThinkOrSwim
1/ Sidebar
TOS has a sidebar that you can arrange however you’d like - conveniently
placing your watchlists, buying power information, and live news just a
glance away.
I use it to quickly move through different tickers & to have $SPY charted at
all times without giving up too much space.
2/ Links
Links allows you to access the same ticker across multiple different tools.
The paperclip button next to the input bar on your charts lets you select from
9 different links.
Quickly get a ticker's chart, option chain, and news if they’re all linked to the
same number
3/ Options Premium Chart
I always trade using an options premium chart. This lets me see where a
premium has been and where it can potentially go.
Here's the code:
Period+Ticker+Year+month+exp date+c/p+strike
Ex: .TSLA211231C1100 for $TSLA 1100 calls expiring on 12/31/2021
4/ Big Buttons
BB's are similar to hotkeys; they allow you to enter/exit positions with the
touch of a button. You can customize the BB's to include/exclude what you
need or don’t.
Used with the options premium chart, you can increase execution efficiency.
Here's my setup:
5/ Chart Settings
Want to customize the look of your charts?
Chart settings lets you overlap volume, hide extended trading hours,
customize your chart background, and more.
Play around with these settings until you find something you like. 4 years in
and I’m still adjusting things.
6/ Fundamentals
You don’t want to be like that guy on CNBC who didn’t know what $UPST
does.
The fundamentals tab will give you a brief rundown on what a company
business and background.
It’ll also show you key ratios and valuation metrics to be used for
fundamental analysis or due diligence
7/ ThinkBack
One of my favorites features of the TOS platform. The ThinkBack tab will
show you what your P/L would be had you taken a specific trade at a specific
time.
We’re taught not to focus on “could’ve” in trading, but ThinkBack can serve as
a surface level backtest for your trading strategies.
8/ OnDemand
The most UNDERRATED tool in TOS. OnDemand allows you to replay any day
in the market.
Want to get better at trading the open? You can practice by using OnDemand
to replay the price action of any day you choose.
Use OnDemand to get as many reps as possible to prepare you for the real
thing.
9/ Drawing Sets
TOS will save your charts as drawing sets to come back to later.
Use the tab in the bottom right corner of the chart to save your drawing set,
start a new one, or view one you made in the past.
This keeps your charts from getting too messy.
10/ Education + Learning Center
New to options/trading in general and want to get a better grasp of the
basics?
The TOS education tab and learning center offers a plethora of free resources
you can use to get a better understanding of the markets and the TOS
platform.
YouTube Educational Videos
We started Kane Capital with the goal of providing Retail
Traders with as much education & information as possible. Our
YouTube channel is one of many ways we do this.
Here are 10 educational YouTube videos I’ve done with the team.
1. Options Trade Tutorial with Unusual Whales
• This video breaks down the UW platform and how I use it to add conviction to
trades:
https://www.youtube.com/watch?v=r_6XI_ryW64&t=10s
2. Detecting Intraday Trends using Moving Averages
• In this video, Mander Trades and I break down how we use Moving Averages to get
solid risk/reward entries on our trades:
https://www.youtube.com/watch?v=bXmdqcVFQaA&t=5s
3. How to Trade with Fibonacci Retracements
• This video walks through how @mandertrades and I use Fibonacci Retracement
levels to spot potential reversal levels:
https://www.youtube.com/watch?v=LPxChB8OFaM&t=1s
4. Using VWAP to Find Day Trades
• This video covers how VWAP can be used intraday to find trades:
https://www.youtube.com/watch?v=51VGxKT0HzU
5. 200% Trade Using Unusual Whales
• In this video I recapped a huge win I took with the help of the Unusual Whales
Platform
https://www.youtube.com/watch?v=xj334kBp26o&t=1s
6. How we found 200% trade
• One of the first videos we put out recapping a banger trade:
https://www.youtube.com/watch?v=84h1_WiUbe0
7. The Right way to Take Trading Alerts
• Dwyane Trade and I teamed up to explain the pros and cons of alert taking, and give
tips & tricks on how to take alerts appropriately:
https://www.youtube.com/watch?v=RHTf-PjckuA
8. Diamond Trades 450% Trade Recap
• In this one I recapped a massive win from the Discord, and detailed what I was
seeing up to and throughout the trade.
• https://www.youtube.com/watch?v=VS14eMNU6Wc&t=4s
9. Breaking Down a Failed Trade
• We tend to learn more from our losers than our winners. This is an analysis of a
losing trade, and what I learned from it.
https://www.youtube.com/watch?v=J4x6uzRZNdA
10. Using Unusual Whales for Day Trades
• In this one I recapped two winning trades and one losing trade I took using UW to
add conviction:
https://www.youtube.com/watch?v=EFHdE-cJSxE&t=85s