Chapter 7: Strategy, Learning Trading Setups

When you first learn day trading, it can seem as though every trader has invented a different strategy. In reality, most are watching the same recurring events: breakouts, pullbacks, continuations, failures, and reversals. What changes is the name, candidate selection, and entry and risk rules.

Here are 15 widely taught intraday stock setups. The people named did not necessarily invent each underlying pattern; they popularized or clearly documented a recognizable version. The difficulty ratings are mine: “beginner” means comparatively easy to define and replay—not safe or easy to trade profitably.

1. Opening Range Breakout: Trade the First Established Boundary

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Candidate: A liquid stock in play with news, a gap, high relative volume, and a manageable spread. When: Usually 9:35–10:30 a.m. ET, after defining a one-, five-, 15-, or 30-minute range. Method: Buy above its high or short below its low, preferably with volume and room to the next level. Risk against the opposite boundary or tighter structure. Scaling: Take partial profit at 1R or the next daily level and trail the remainder.

2. Gap-and-Go: Join a Gapper That Keeps Going

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Candidate: A stock gapping on a real catalyst, with strong premarket volume, a clean daily chart, and often a low float. When: Premarket through roughly 10:00 a.m. ET. Method: Trade continuation above the premarket high, after an opening pullback, or from a brief flag. Execution is fast, making this less beginner-friendly than it appears. Scaling: Take partials into new highs; add only at fresh consolidations, never into an extended candle.

3. ABCD and Reverse ABCD: Pullback, Hold, Continue

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Candidate: An orderly directional mover with clear volume and support or resistance. When: Often after 9:45 a.m. ET. Method: In the bullish version, AB is the impulse, BC the controlled pullback, and CD the continuation after C holds. Reverse it for a short. Enter near C or on confirmation, risking beyond C. Scaling: Build near C and confirmation; take partials near the prior high and measured target.

4. Bull Flag and Bear Flag: Buy or Short the Pause

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Candidate: A strong mover with a sharp flagpole and shallow, lower-volume consolidation. When: Any active period, especially the first two hours. Method: A bull flag breaks upward from a tight pullback; a bear flag breaks downward. Deep, sloppy retracements are lower quality. Enter as the pullback or flag boundary breaks. Scaling: A starter before the break and an add on confirmation may precede partials into extension.

5. Flat-Top and Flat-Bottom Breakout: Pressure Against One Price

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Candidate: A stock repeatedly testing resistance while making higher lows—or testing support while making lower highs. When: After the opening surge or during later consolidations. Method: Repeated tests can consume liquidity. Enter when the level breaks with volume; use the latest higher low or lower high as risk. Scaling: Begin small near the level, add on confirmation, and exit partials into the breakout surge.

6. High-of-Day and Low-of-Day Breakout: Challenge the Session Extreme

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Candidate: A stock in play consolidating beneath HOD or above LOD without losing structure. When: Late morning through afternoon, once a meaningful extreme exists. Method: Trade the break if volume expands and price has room beyond the level. Failed tests, opposing liquidity, or extension increase trap risk. Scaling: Take partial profit into the first push and trail the remainder behind higher lows or lower highs.

7. VWAP Reversal or Reclaim: Use the Intraday Line in the Sand

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Candidate: A liquid stock approaching a respected VWAP after a directional move, ideally near another level. When: Usually after 10:00 a.m. ET. Method: Go long when price rejects a breakdown and reclaims VWAP, or short when a breakout fails and loses it. Volume and tape should confirm control changing hands. Scaling: Start small near the reclaim, add after it holds, and take partials at prior pivots.

8. VWAP Trend Trade: Stay With the Dominant Side

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Candidate: A strong stock above rising VWAP, or weak stock below falling VWAP, with orderly pullbacks. When: Late morning and afternoon. Method: Enter with the trend when a pullback holds VWAP or a retest fails from below. Exit if VWAP decisively fails or structure changes. Scaling: Add at confirmed higher lows or lower highs and exit at successive intraday levels.

9. Holy Grail Moving-Average Pullback: Re-enter a Strong Trend

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Candidate: A strong, liquid trend making its first controlled pullback toward a short moving average. When: After the trend is established. Method: Raschke and Connors’ original used ADX and a 20-period EMA; stock traders often adapt it to the 9 or 20 EMA. Enter as the trend resumes, risking beyond the pullback. Scaling: Start near the average and add on renewed momentum; stop adding if it fails.

10. Red-to-Green and Green-to-Red: Cross the Previous Close

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Candidate: An active stock near the prior close after opening on its opposite side. When: Around the open and early morning. Method: Red-to-green crosses above the previous close and may squeeze shorts; green-to-red crosses below and can trap longs. Prefer a convincing cross or retest. Scaling: Start on the cross, add after a successful retest, and take profit at nearby premarket or daily levels.

11. Fallen Angel: Buy the Low-Float Recovery

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Candidate: A low-float, high-volume gapper that opens strongly, sells off, then bases instead of collapsing. When: After the opening failure, once support and exhaustion appear. Method: Enter long as the base holds and volume returns, risking beneath support. This is advanced because “cheap” can become much cheaper. Scaling: Begin small, add only after confirmation, and take partials into VWAP, moving averages, or prior pivots.

12. Top and Bottom Reversal: Trade Confirmed Exhaustion

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Candidate: A liquid stock extended into a major level after several directional waves. When: Common in late morning, but possible anytime. Method: For a top, seek failed continuation, a lower high, loss of VWAP or a moving average, and increasing sellers. Reverse this at a bottom. Scaling: Probe small, add after confirmation, and take profits at successive support or resistance levels.

13. Parabolic Blow-Off Reversal: Wait for the Backside

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Candidate: An exceptionally extended stock—often low float and up 30% to 100% or more—with extreme volume, widening range, repeated high tests, and diminishing progress. When: Premarket or regular hours, after the parabola develops. Method: This is my territory. I want exhaustion and a failed level, not merely “too high.” Frontside shorting can be catastrophic; backside confirmation matters. Scaling: Newer traders should favor one planned entry, fixed risk, and partial covers at support, VWAP, moving averages, or Fibonacci rungs.

14. Turtle Soup: Fade a Failed Breakout

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Candidate: A liquid stock briefly breaking a conspicuous high or low, then snapping inside the former range. When: When a well-watched level is tested, often during high-volume periods. Method: Short a break above resistance that fails back below, or buy a failed breakdown. Risk beyond the failed extreme. Scaling: Enter after confirmation, take partials near the range midpoint, and hold a remainder for the opposite boundary.

15. TTM Squeeze: Trade Expansion After Compression

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Candidate: A liquid stock with contracting volatility near a catalyst or important level and a clear higher-timeframe bias. When: Any time, provided enough session remains for expansion. Method: Carter’s setup compares Bollinger Bands with Keltner Channels to identify compression. Trade the release only after momentum and structure indicate direction. Scaling: Enter on release or the first pullback, take partials as momentum expands, and trail the balance.

The Setup Is Only Half the Trade

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A setup name is not a complete trading plan. You still need candidate criteria, an entry trigger, invalidation, targets, sizing rules, and a maximum loss. Pick one or two setups, collect examples, and practice deliberately. Fifteen setups on a screen create noise. One carefully defined setup can become an edge.

Educational information only; day trading and short selling involve substantial risk. Short positions can produce losses greater than the initial capital committed.