Our trading strategy explained
Our trading strategy, and the alGROWithm indicator itself, is based on the theory that price moves from supply to supply and demand to demand. Below is an explanation of how the alGROWithm team uses the indicator on a daily basis.
Every evening and morning, we look at all of the names on our watchlist and find our favorite, most probable setups. We compile a daily watchlist and share it with all alGROWithm members. These names are usually the only ones we personally watch each day. The AMZN chart below is the example we'll use to walk you through our trading strategy.
This is the hourly chart of AMZN, so every candle you see there represents 1 full hour of trading. You can see that AMZN has been trading between the bounds of this wedge (white trendlines) since September 2020. The yellow horizontal line at 3367 is a major supply level.
- "Supply" means a level where a lot of investors sell their holdings and take profit because it reached their price target, which results in a price rejection and drop in stock price. You can see that the market was in consensus about this price target for AMZN, as it was rejected at this level 5 or 6 times since September (yellow circles). It managed to breakthrough twice but quickly retraced back into the range.
- Supply is created when emotional buyers buy from smart sellers. It's important to understand this concept, because you want to be on the smart side, not the emotional side. Take a look at the yellow circles and envision both personas in that moment. The emotional trader is saying "AMZN is for sure going to break through this level. I need to get in now!" -- only to be sorely sorry because all of the smart sellers are saying "I don't think the value of AMZN is worth more than this, so I'm going to sell" and the price strongly rejects the level. This is why in our strategy, we only buy a stock/option when price breaks a major supply level. When this happens, it means the market is in consensus that this asset is actually worth more than this level, and all of the investors that were previously sellers at this level either hold or buy more. Price tends to explode through the level in this situation.
The next level of supply on the AMZN chart is the first horizontal green line at around 3400. Since price moves from supply to supply and demand to demand, this is technically the next price target, followed by 3450, 3500 and 3550. Our trading style is more conservative, so we would definitely take partial profit on the way up.
This is where alGROWithm is insanely useful. We use the 5 minute chart when active in a trade, and use alGROWithm to guide us through it. We NEVER enter a trade unless alGROWithm flashes a BUY signal, and we use the TP points it gives on the way up to partially and periodically offload our position.
While understanding this trading concept is important, it is not necessary in order to be successful with alGROWithm. All of this logic is built into the software. If you are a beginner with alGROWithm, it is highly recommended to "see profit, take profit" until you get the hang of it, which shouldn't take long! Not a member yet? Join now!
(If you happen to read this on 2/1/2021, note that AMZN has earnings tomorrow after market close. We personally never hold a stock/option through earnings because it's too unpredictable. If we take this trade tomorrow, it will most definitely be a day trade.)
Hope this helps!