How we trade - The Wagner Daily employs a trend trading styem in stocks and ETFs based on relative strength and pattern recognition. We believe in letting the trend do the work while we monitor positions for proper offensive or defensive sell signals to lock in profits. The system operates on two timeframes, short-term (swing trades) and intermediate-term (core trades). We do play the short side of the market when conditions are poor and the major market indices are trending lower below the 50-day and 200-day moving averages. Short setups are swing trades only.
Short-term (Swing Trade) -
Held for a few days to 3 to 4 weeks on average (depending on the reason for entry).
Generally speaking, swing candidates lack the proper institutional support or fundamentals to be held through pullbacks, so the idea is to sell into strength. That being said, where a stock is purchase in a pattern can also influence the type of hold it is. The further away from a strong base the stock is purchases, the shorter the trade timeframe.
Intermediate-term (Core Trade) -
Core trades are held anywhere from one to six months.
We may trade around a position, trimming when extended and buying back shares on a pullback, but a portion of the position may be held for several months if the trend is strong.
Generally speaking, most core trades will have strong earnings and revenue growth or the potential for growth. Since ETFs do not have fundamentals, we will only use relative strength and price patterns to define a core trade.
market timing model - The core basis of our trading strategy is based on following our disciplined, rules-based market timing model. Doing so typically keeps us on the right side of the market (long or short), and positioned with the right amount of capital exposure in the markets that is proportionate to risk. As such, this first section of the newsletter indicates our current overall market bias, based on our proprietary market timing model. Whether you follow our individual trade picks, or just use the newsletter as a market timing guide for your own investments, this section aims to keep you out of trouble when conditions have reversed, while enabling you to maximize profits when all the signals are lining up. Following is an explanation of each of the four modes of our market timing model that will be listed here at all times:
confirmed buy -
High odds of the broad market following through to the upside and staging (or remaining in) a meaningful rally
Positions sized at full (maximum) risk
No short positions
Market conditions have improved (when coming from prior decline) and are beginning to show signs that stocks are ready to launch a meaningful rally
Positions typically sized at 25% - 50% of maximum position sizing
May still have 1-2 short positions in the portfolio if the buy signal is weak and the prior decline was significant
Buy signal was recently generated as market was attempting to form a bottom, but the buy signal fails (false buy signal)
Rather than immediately switching back to "sell" mode, we adjust the model to "neutral."
In this mode, we can be positioned either long聽or short
Position size of all new trade entries will be lighter than usual, in order to reduce risk
Only a limited number of positions are initiated in order to reduce risk. Substantial cash position recommended.
Current intermediate-term market rally is over and odds of the market pulling back are very high (when the broad market is extended from a multi-month rally)
We immediately get off margin
Will be focused on taking winners off the table, tightening stops on long positions, and/or reducing long exposure significantly
In some cases, we will sell all positions and quickly move 100% to cash.
A few short positions initiated
confirmed sell -
Broad market is breaking down and the odds of a significant decline are high
No long exposure, as we do not trade against the market trend
Short exposure (including inverse ETFs) is at its highest level, in order to profit from a downtrending market
today's watchlist - When clear stock or ETF swing trade opportunities present themselves, this is where the specific details of the technical setup are listed. Specific share size, trigger, stop, and target prices are all provided. The frequency of setups provided is dependent on both market conditions and our current number of open positions, but we typically target several new stocks or ETFs for entry each week. Holding times vary, but average between 1 to 3 weeks.
Note that any cells shaded in green color indicate a new addition to the watchlist since the previous day's report.
Symbol - Ticker symbol of the stock or ETF
Side - Indicates whether the trade is a long entry (buy) or short entry (sell short)
Type - This is the order type for the trade. If new to trading, a basic explanation of order types can be found here.
Size - The share size we are targeting for trade entry, listed as a percentage of account equity. A 10% position in stock XYZ in a $100,000 trading account is 10% of $100,000 = $10,000. Divide the $10,000 by the entry price to arrive at share size. We list the share size as a percentage of account equity to make it a quick calculation.
Exact price that the stock or ETF must trade through before we will
enter the trade. For a "long" setup, the stock or ETF
must trade at or above the trigger price (for "buy stop")
or the maximum price we will pay for the trade (for "buy
limit"). For a "short" setup, it must trade at or
below the trigger price ("sell stop"). Note that we will
only enter the position if
the trigger price is hit during the trading day. Entering a trade
it trades through its pre-determined trigger price substantially
increases the risk of loss, and is not
5-minute rule -
Market makers can and do manipulate the opening price action of
stocks and ETFs. To avoid "false triggers" for trade
entry, we have a very simple rule in place in which we
do not take any entries (long or short) that trigger within the
first five minutes of trading.
After 5-minutes have passed (9:35 am ET), we mark the 5-minute
high (or low if short entry) and add (or subtract) 10 cents to
that number as the new entry price.
Buy setup example:
The night before the market opens, we list stock ABC as a buy with a trigger price of $40.00. During the first 5 minutes of trading, ABC stock hits our buy trigger price at $40.00. Because our entry triggered before 9:35, we ignore the entry and apply the 5-minute rule. After 5-minutes have passed, we see that the 5-minute opening high was $40.20, so we add 10 cents to the 5-minute high, giving us a new buy trigger price point of $40.30.
The process is the same for a short selling setup, but we use the 5-minute low and subtract 10 cents from that number as the new short entry.
Short selling setup example:
The night before the market opens, we list stock XYZ as a short setup (betting the price will go down), with a short trigger price of $50.00. During the first 5-minutes of trading, XYZ stock trades below our short entry at price of $50.00. Because our entry triggered before 9:35, we ignore the entry and apply the 5-minute rule. After 5-minutes have passed, we see that the 5-minute low was $49.75, so we subtract 10 cents from the 5-minute low, giving us a new short entry point of $49.65.
If you are unable to watch the market during the open (such as if you have a daytime job), we highly recommend opening a trading account with a brokerage firm that allows the placement of "conditional orders." This means you can set your order to automatically not go live until 9:35 am, rather than immediately on the market open. Two brokers we recommend for this are Interactive Brokers and TradeStation, both of which offer very cheap commissions and high technology for active traders.
With regard to opening "gaps," if the 5-minute high of the gap is more than 1.3% above the trigger, then the setup is cancelled. See below for details.
Gap Rule - When a stock or ETF "gaps" (opening price change from previous day's closing price) more than 1.3% above or below a trigger price for entry, the setup is automatically cancelled. For example, if we list a buy trigger at $30.00 and the price the following day opens greater than $30.39 ($30 x 1.3%), the trade is is automatically cancelled. So, if the stock/ETF opens at $30.45 the trade is automatically cancelled. One must place a buy stop-limit order to execute this rule. This is done by placing a buy stop order to trigger at $30.00, with a maximum fill (a limit) at $30.39. It is generally only necessary to do this when the futures market is indicating a sharp "gap" from the previous day's close.
Stop - If the setup triggers for entry, this is the initial price at which we will have a protective stop market order (we always use "stop market," not "stop limit" orders). As a position becomes profitable this stop price will often be trailed higher in order to lock in profits (depending on swing or core trade), . Any new adjustments to the stop price are also reported in the next day's newsletter, under the "open positions" section. Note that there are two types of stops, end of day stops and hard stops.
End of Day Stops - All stops unless noted are based on the closing price, meaning that if a stop is triggered during the trading session, we wait until the close to see if it is above the stop price. If so, then we continue to hold. If the close is at or below or stop, then we exit the position the very next day on the open “at the market”. If one is able to exit the position right before the market closes with a market on close order that is fine.
Hard Stops - Primarily used to protect gains or a break-even point. When these stops trigger the position is to be sold immediately. We will alert all subscribers when a hard stop is in place by highlighting the stop price in the open positions section with a red cell. Again, unless noted otherwise, all stops are on an end of day basis.
Target - This is the roughly anticipated price we expect the stock or ETF will move to. Note that we automatically close trades as soon as they hit their target prices (unless the "stop" price is hit first). However, this does not mean we will always hold the stock or ETF to that price. When conditions warrant, we will take profits before the predetermined target price. Again, any overnight changes to the target price are reported under the "open positions" section.
n52wh - We do not have an exact target, but we do expect a move to new 52-week highs. The target will be updates as soon as possible.
nsh - We do not have an exact target, but we do expect a move to new swing highs. The target will be updates as soon as possible.
Open Positions - An overview of all open stock and ETF positions currently being held in our model portfolio. In this section, our current protective stop and target prices are listed for each position. When changes have been made to open positions, such as stop or target prices, the cells are highlighted in pink color for quick reference. New trade entries since the previous day's report are shaded in green colored cells.
closed positions - An overview of all stock and ETF positions that were closed only since the previous day's report. A cumulative performance report of all past trades can be found on the performance page of our web site. When reporting closed positions, we use realistic entry and exit prices that account for normal slippage, rather than the exact, theoretical prices that were listed in the setup.
ETF, stock, and broad market commentary - This section provides a brief technical recap of recent market action and discusses specific ETFs and stocks we are monitoring for potential entry on the long or short side of the market (depending on market trend).
Legend to chart annotations - On the charts included in the commentary, here is a key for the various indicators on the charts:
black line = 10-day simple moving average (SMA)
beige line = 20-day exponential moving average (EMA)
teal line = 50-day simple moving average (SMA)
orange line = 200-day simple moving average (SMA)
light blue = 10-week simple moving average (SMA)
orange line = 40- week simple moving average (SMA)
As always, please feel free to e-mail us with any questions, comments, or feedback on The Wagner Daily newsletter. Enjoy your subscription and good trading to you!
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