DANGSTRAT

The TRUTH in Price Action

#THESTRAT x #ALGOFLOW
This is a FREE PowerPoint Preview to DANGSTRAT’s Course

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 DANGSTRAT’S MISSION
Our mission is to educate traders on what it really means to understand price action
on any timeframe so you're able to be profitable in any market condition. By
learning #TheSTRAT and applying it with Tradytics' Artificial Intelligence Bot we
believe every trader can significantly increase their profitability. We provide the
tools and resources so you can enhance your trading capabilities. Trading is a skill
and once you learn that skill, no one can ever take that away from you.

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THE STRAT: WEEKEND SHIFT WITH THE
STRAT SOLDIER FEATURING DANGSTRAT
The TRUTH in Price Action
#THESTRAT x #ALGOFLOW

https://youtu.be/xa51LPz8Vec
Table of Contents for #THESTRAT
1. What is #TheStrat?
2. The Three Scenarios - 1s, 2s, 3s
3. Candlestick Patterns
4. Strat Combos & Actionable Signals
5. Strat Language
6. Reversals & Continuations
7. Timeframe Continuity
8. Broadening Formations
9. Pivots
10. What Winning and Losing Trades Look Like
11. Trading Checklist for Creating a Watchlist & Execution
12. Types of Traders & Investors
13. Trading Gaps
14. Flips and Simultaneous Breaks
15. Risk & Reward
What is The Strat? (Overview)
The Strat is a price action based trading method created by Rob Smith. It is
based on universal principles in price action to which all price must adhere.

It focuses on what is shown to be true by using multiple timeframe for

quantitative analysis following the aggregation of price over time, divided
among different participation groups, in the form of candlestick price charts.

Rob Smith has concluded his trading method after participation in the market
for more than 20 years as he was a floor trader on the Chicago Stock
Exchange.

The Strat eliminates guessing, bias, market noise, and focuses on aspects that
we can define, quantify, analyze and execute on.
The THREE Scenarios - 1s, 2s, 3s
Trading is NOT about predicting what will happen next to the price, it is about REACTING to
price action. In order to be prepared, you must have a plan of action. From one candlestick to the
next there is only THREE TOTAL POSSIBLE SCENARIOS and I will go over what those three
scenarios are in the next slide.

The most important thing you must understand is because there are only three scenarios it
narrows down the possibilities on what can happen next which will increase your chances of
being profitable if you understand what they are. Do not over complicating trading by using 10
different indicators on a chart, just trade #TheStrat.

Before you enter a trade, visualize what the three different candlestick possibilities. Have a plan
and tell yourself “If this happens, I will do this, and if that happens I will do that.” Since trading is
about reacting to price action, before you enter a trade you must know where and when you will
enter and also before you enter you must know “if price goes down I will get stopped out here
and if price goes up I will take profit here.” Having a plan before taking a trade is 90% of the work,
the other 10% is execution.
The THREE Scenarios - 1s, 2s, 3s
What are they and why are they important?
Scenario One: Labeled as a ‘1’

- INSIDE BAR is a candle which doesn’t take out the previous bar high AND low.
- Inside bars means there is an equilibrium in the market so because price stays inside of the previous bar’s range it is
consolidating.
- INSIDE BARS are important because on the next live candle, it gives an opportunity to play the breakout of the
consolidation period once the next candle goes 2u or 2d by taking out a previous high or low of the inside bar

Scenario Two: Labeled as a ‘2u’ or ‘2d’

- DIRECTIONAL BAR is a candle which takes out the previous bar high OR low, not both.
- 2u shows a directional move to the upside
- 2d shows a directional move to the downside.
- A series of 2u bars show a bullish trend
- A series of 2d bars show a bearish trend

Scenario Three: Labeled as a ‘3’

- OUTSIDE BAR is a candle which takes out BOTH the previous bar high AND low.
- An outside bar can show a directional move or a reversal.
- In order for a 3 to occur it has to be a 2 first. “Once a 3 always a 3, can’t not be” - Rob Smith
- Outside bars show aggression in the direction it’s going
Examples of Scenario One - 1s
Examples of Scenario Two - 2s
Examples of Scenario Three - 3s
Candlestick Patterns

What are the different types of candlesticks you need to know?

1. Big & Small Body Candles

2. Hammer Candles
3. Momentum Hammer Candles (momo hammer)
4. Shooter Candles
5. Momentum Shooter Candles (momo shooter)
6. Doji Candles
HOW TO READ CANDLESTICKS
Bullish & Bearish Candlestick Basics
 Big & Small Body Candles

A candle tells us about the

current supply and demand
during the lifespan of the candle.
A big candlestick that decreases
in price means that during that
time, supply was much higher
than demand. If the candle
increases in price, then demand
was higher than supply.
Hammer Candles
A hammer is a price pattern in candlestick charting that occurs when a security
trades significantly lower than its opening, but rallies within the period to close
near the opening price. The open and close are within the top 33% of the
candle’s range. This pattern forms a hammer-shaped candlestick, in which the
lower shadow is at least twice the size of the real body. The body of the
candlestick represents the difference between the open and closing prices, while
the shadow shows the high and low prices for the period.

KEY TAKEAWAYS
● Hammer candlesticks typically occur after a price decline. They have a small
real body and a long lower shadow.
● The hammer candlestick occurs when sellers enter the market during a price
decline. By the time of market close, buyers absorb selling pressure and
push the market price near the opening price.
● The close can be above or below the opening price, although the close
should be near the open in order for the real body of the candlestick to
remain small.
● The lower shadow should be at least two times the height of the real body.
● Hammer candlesticks indicate a potential price reversal to the upside. The
price must start moving up following the hammer; this is called confirmation.
 Momentum Hammer (Momo Hammer)
A MOMO HAMMER is a hammer candle that forms near the highs of a strong previous uptrend.
A momo hammer can either be a green hammer that is scenario 1 or a hammer that is 2u.
Shooter Candles

A shooting star is a bearish candlestick with a long upper shadow, little

or no lower shadow, and a small real body near the low of the day. It
appears after an uptrend. Said differently, a shooting star is a type of
candlestick that forms when a security opens, advances significantly,
but then closes the day near the open again.

KEY TAKEAWAYS
● A shooting star occurs after an advance and indicates the price
could start falling.
● The formation is bearish because the price tried to rise significantly
during the day, but then the sellers took over and pushed the price
back down toward the open.
● Traders typically wait to see what the next candle (period) does
following a shooting star. If the price declines during the next
period they may sell or short.
● If the price rises after a shooting star, the formation may have been
a false signal or the candle is marking a potential resistance area
around the price range of the candle.
Momentum Shooter (Momo Shooter)
A MOMO SHOOTER is a shooter candle that forms on the lows of a previous strong downtrend.
A momo shooter can either be a red shooter that is scenario 1 or a shooter that is 2d.
Doji Candles
A doji—or more accurately, "dо̄ji"—is a name for a session in
which the candlestick for a security has an open and close that
are virtually equal and are often components in patterns. Doji
candlesticks look like a cross, inverted cross, or plus sign.
Alone, doji are neutral patterns that are also featured in a
number of important patterns.

KEY TAKEAWAYS
● A doji is a name for a session in which the candlestick for a
security has an open and close that are virtually equal and
are often components in patterns.
● Alone, doji are neutral patterns that are also featured in a
number of important patterns.
● Doji formations come in three major types: gravestone,
long-legged, and dragonfly.
 Strat Combos & Actionable Signals

Actionable signals are signals that we can

trade off of. These signals have clear entry &
exit points.

TYPES REVERSALS OR CONTINUATIONS

(combinations of 1s, 2s, 3s).
- 2d-1-2u Bullish Reversal
- 2u-1-2d Bearish Reversal
- 3-1-2u Bullish Reversal
- 3-1-2d Bearish Reversal
- 2d-2u Bullish Reversal
- 2u-2d Bearish Reversal
- 3-2d-2u Bullish Reversal
- 3-2u-2d Bearish Reversal
- 3-2u Bullish Reversal
- 3-2d Bearish Reversal
- 1-2d-2u Rev Strat Bullish Reversal
- 1-2u-2d Rev Strat Bearish Reversal
- 1 Bar Rev Strat Bullish Reversal
- 1 Bar Rev Strat Bearish Reversal
- 2u-1-2u Bullish Continuation
- 2d-1-2d Bearish Continuation
- 2u-2u Bullish Continuation
- 2d-2d Bearish Continuation
 Strat Language (Terminology)
Breaking Down Price Action: Start with larger time frames then work your way down to the smaller time frames
(Type of Strat Combo) | (TimeFrame) | (Reversal or Continuation) |
- Examples: 212 month bullish continuation, 122 week rev strat down, 322 day bearish reversal, 22 60er bullish reversal etc

KEY TERMS KEY TERMS

- FTFC = Full Time Frame Continuity - GIT = means it looks good (want it to go higher)
Different Timeframes - MTF = Multiple Time Frame - PUKE =means it looks bad (want it to go lower)
5er = 5min chart - UP = Bullish Reversal or Continuation - TRI = Triangle
15er = 15min chart - DOWN = Bearish Reversal or Continuation - #SSS50PERCENTRULE = When the live candle goes above/below
30er = 30min chart - MOMO HAMMER = Momentump Hammer Candlestick 50% of previous candle
60er = 60min chart - MOMO SHOOTER = Momentum Shooter Candlestick - LOTTO = Extremely risky play
- KICKING PATTERN: is when 80% of the daily candle is red then the
2HR = 2 hour chart - EXHAUSTION RISK = No more pivots to take out
next day it gaps up above the high of the red candle causing all the
4HR = 4 hour chart - PRICE DISCOVERY = Series of Broadening Formations
shorts to cover or longs to get stopped out. Stops removes liquidity
Day = Daily chart - ID= Inside Day
- ALGORITHMIC TRADING = 70% of trading is done algorithmically
Week = Weekly chart - IW = Inside Week which means you can pick up on what the algos are doing. You have
Month = Monthly chart - BF = Broadening Formation to tell a computer program 4 things:
- TTO = Triangle They Out (corrective activity) - 1. What do you want it to do? (what symbol?)
- PMG = Pivot Machine Gun (going through a previous - 2. Do you want it to buy or sell?
range quickly by stopping people out) - 3. How do you want it to buy or sell? By staying on the bid or taking
- ATH = All Time High the offer?
- NATH = New All Time High - 4. When do you want it to do it? Buy or Sell NOW?
- LOD = Low of Day
- HOD = High of day
Reversals & Continuations
The goal is to enter on reversals and add on continuations. The reason why you want to enter on
a reversal is because you want to go against other traders with losing positions so you can be on
the winning side of the trade. Once you’re in on a reversal, if you’re in a winning trade you want
to look to add on continuations and take profit into strength. Once price reverses against you
then you exit your position with no hesitation.

When something triggers for an entry, the winners will work right away. It is important to cut
any losing positions fast and keep your losers small. Everyone has losers. It’s important you
minimize how many you have, minimize your losers to keep them small, and you do this by
cutting the losers fast. As traders it is your job to manage risk. Make sure your reward always
outweigh your risk by compounding your winners and cutting your losers.
212 and 312 Reversal Examples
22 and 322 Reversal Examples
32 Reversal Examples
122 Rev Strat Reversals Examples
1 Bar Rev Strat Reversal Examples
212 Continuation Examples
Time Frame Continuity

TIMEFRAME CONTINUITY PRINCIPLE = By using multiple timeframe analysis, you

will see if there’s full timeframe continuity to the upside or to the downside, or mixed
timeframe continuity. To determine this you have to look at the 60, daily, weekly,
monthly. Price doesn’t move, it aggregates, there has to be a buyer for every seller. If
you look at the 60, daily, weekly, and monthly and see that all timeframes are green,
that means the buyers are more aggressive. We call this “FTFC UP (Full Timeframe
Continuity to the Upside). If you look at the 60, daily, weekly, and monthly and see that
all timeframes are red, that means the sellers are more aggressive. We call this
“FTFC DOWN (Full Timeframe Continuity to the downside). Looking at multiple
timeframe analysis lets your know who is in control. It lets you know if the algos are
buying or selling.
Decouplings

You will often hear me say let them open, especially on the first day of the month, first day of the
week, and first hour of the day. Decoupling is when there are separate openings for each
candlestick timeframes. On the first day of the month, the daily, weekly, and monthly candles are
the same so we only know what the monthly participants are doing so you want to look for
monthly signals instead of daily and weekly signals. On the first week of the month, the weekly
and monthly candles are the same. On the first 60min candle of the day, it is the same candle as
the daily candle. The reason why you want to “let them open” is because as time goes on, you
gain for information of what the different participants are doing.
Broadening Formations
Broadening Formations are Higher Highs and Lower Lows

Have you ever gotten stopped out, then immediately after you get stopped out, the
price takes off without you? It is because people set stop losses at obvious pivots and
price discovery works in a series of broadening formations by going through previous
ranges or expanding.

Triangle They Out (TTO) = Corrective Activity

- It’s a broadening formation on a higher timeframe. Think of the correction as a
“compound scenario 3.”
- TTOs are bull/bear flags or triangles forming after an uptrend/downtrend.
- Once you get a TTO you want to look for a reversal to trade in the direction of full
timeframe continuity
Example of a Broadening Formations on the Monthly
Example of Broadening Formations on the Weekly
Example of Broadening Formations on the Daily
Example of Broadening Formations on the 60
 Pivots

Pivots are the highs or lows of a price range.

This is where people are setting their stop
losses. These price ranges can be on any
timeframes. The most important timeframes
are the monthly, weekly, daily and 60.

PMG (Pivot Machine Gun) is going through a

previous range where there are 5 or more
pivots that are near each other. PMG can
lead to large moves because going through a
previous range stops people out. If there is a
PMG to the upside, shorts are forced to
cover and with natural buyers it cause a
quick move to the upside. If there is a PMG
to the downside, longs are forced to sell and
with more shorts in control it causes a quick
move to the downside.
What Winning and Losing Trades Look Like
$TSLA Trade Breakdown Example
$DIS Trade Breakdown Example
$AAPL Trade Breakdown Example
$AAPL Trade Breakdown Example
 Trade Breakdown Videos Examples

- $AAPL $XOM Trade Breakdown for 20% and 8% in 5 Minutes: https://youtu.be/NSyPjtVWpHk

- $AMC Trade Breakdown for 33% Day Trade: https://youtu.be/JcQUbcJYmMY
- $TSLA 80% swing, $TSLA 8% 5 minute scalp, $NIO 10% swing: https://youtu.be/ooijFEG5FMo
- $OCGN $NFLX $SOFI $AFRM Trade Breakdown: https://youtu.be/WUU_Y4eG1mM?t=1
- $MU Trade Breakdown 13% Gain in 13 Minutes: https://youtu.be/jK4TlMqF9ko
- $AFRM Trade Breakdown 21% Gain in 17 Minutes: https://youtu.be/9mqJpwZvtmo
- $ORCL Day Trade Breakdown 100% Gainer: https://youtu.be/YhmVeAEAdV0
- $AMD Trade Breakdown 21% Gain in 7 Minutes: https://youtu.be/I0EYTdyqt2w
- $DIS Trade Breakdown 11% Gain in 11 Minutes: https://youtu.be/UNDsh81I1ek
- $PLUG 13% Gain in 9 Minutes, $AAPL 7% Gain in 5 Minutes: https://youtu.be/1ndRQQyvz6w
- $AFRM Day Trade Breakdown 20% in 16 Minutes: https://youtu.be/-dv0Lk4mHIo
- $SQ Trade Breakdown 11% in 2 Minutes: https://youtu.be/adJtpssxM0g
- $NIO 13% Gain in 11 minutes, $PLTR 18% Gain in 4 minutes, $DKNG 13% Gain in 7 minutes: https://youtu.be/sOEy0XBnU4A
- $NET 7% gain in 1 minute, $NVDA 10% & 9% gain in less than 5 minutes: https://youtu.be/qezFfsTK4GM
- $U Swing Breakdown: https://youtu.be/VtCbkcSRlD0
- $NFLX $NVDA Trade Breakdown 13% Gain in 2 Minutes: https://youtu.be/zFNKa5DLqgw
- $DDOG 100%+ Gain In 2 Minutes: https://youtu.be/CJCnNuMENf4
- $NVDA 10% Gain in 24 seconds, $CRWD 17% Gain in 11 minutes: https://youtu.be/Y-onWKTQeVw
 Trading Checklist for Creating a Watchlist & Execution
1. IS THE ENTRY ON A REVERSAL OR A CONTINUATION? Reversals are better 6. WHAT TYPE OF CANDLESTICK IS IT? (Candle before the live bar)
- TYPES OF REVERSALS & CONTINUATIONS - HAMMER (Bullish)
- 2d-1-2u Bullish Reversal
- SHOOTER (Bearish)
- 2u-1-2d Bearish Reversal
- 3-1-2u Bullish Reversal
- 3-1-2d Bearish Reversal 7. HOW MUCH TIME IS LEFT ON THE LIVE CANDLE ONCE IT
- 2d-2u Bullish Reversal TRIGGERS?
- 2u-2d Bearish Reversal - If time is running out don't enter the trade
- 3-2d-2u Bullish Reversal
- 3-2u-2d Bearish Reversal
8. ARE YOU RAISING & TRAILING YOUR STOPS?
- 3-2u Bullish Reversal
- 3-2d Bearish Reversal - Once you're up 10% raise your stop to breakeven
- 1-2d-2u Rev Strat Bullish Reversal - Trail your stops
- 1-2u-2d Rev Strat Bearish Reversal
- 2u-1-2u Bullish Continuation 9. HAS MARKET PICKED A DIRECTION? ARE YOU TRADING IN THAT
- 2d-1-2d Bearish Continuation DIRECTION? WHAT MARKET STAGE IS IT IN?
2. WHERE IS YOUR STOP? STOPS SHOULD BE TIGHT!
- Check $SPY $QQQ $DIA $IWM $ARKK depending on what you're
- If a trade doesn't work right away or within 5-10 minutes MAX exit the position trading. Make sure there are no inside bars. Inside bars means market is
consolidating so you want to avoid the choppy price action.
3. DO YOU HAVE FULL TIMEFRAME CONTINUITY (FTFC)? - Check to see if it is currently in the accumulation, uptrend, distribution,
- 60, Daily, Weekly, Monthly Candles are all green = FTFC Up (Bullish) or decline stage
- 60, Daily, Weekly, Monthly Candles are all red = FTFC Down (Bearish)

4. IS THE DIRECTION IN YOUR FAVOR? 10. ARE YOU TAKING PROFIT WHEN PRICE REVERSES ON YOU? ARE
- Bullish: Weekly + Monthly = 2u YOU ADDING TO YOUR WINNERS AND CUTTING ARE LOSERS?
- Bearish: Weekly + Monthly = 2d - Use 5, 15, 30, 60, D if you're day trading
- Use 60, D, W, M if you're swing trading
5. IS PRICE CONSOLIDATING ON ANY TIMEFRAMES?
- NO Inside bars on the D, W, M
Types of Traders & Investors

SCALP TRADERS: Trades are seconds to minutes long

- Timeframe Suggested for Entries & Exits: 1min, 3min, 5min, 15min

DAY TRADERS: Trades are minutes to hours long

- Timeframe Suggested for Entries & Exits: 5min, 15min, 30min, 50min, 2HR, 4HR, Daily

SWING TRADERS: Trades are days to months long

- Timeframe Suggested for Entries & Exits: 60min, Daily, Weekly, Monthly

LONG TERM INVESTORS: Trades are 1+ years long

- Timeframe Suggested for Entries & Exits: Weekly, Monthly, Quarterly, Yearly
Trading Gaps

Strategy #1:

1. On gap ups look for profit takers at the open if there are no pivots to take out above
2. On gap downs look for shorts to cover at the open if there are no pivots to take out below
3. Look for gap fills then reversals into FTFC on the 5min, 15min, 30min, 60min timeframes

Strategy #2:

1. On gaps with pivots left to take out, look to play the Opening Range Breakout (ORB) on
the 5min, 15min, 30min, 60min timeframe
2. On Kicker Patterns look to play the ORB
○ Kicker Patterns: 80% of the day is red/green then the next day it gaps up/down above/below the
high/low causing all the shorts to cover or longs to get stopped out. Stops removes liquidity
Flips and Simultaneous Breaks
“The Flip” = whenever there is a new 60 minute candle. The first “Flip” is at 10:30 EST, next flips
are at 11:30, 12:30, 1:30, 2:30, and the last “Flip” of the day is at 3:30 EST.

“Simultaneous Breaks” are when all of the stocks in a sector having bullish or bearish reversals
all at the same time. This lets us know where the money is flowing. The important sectors to
follow are:

1. Energy - $XLE
2. Materials - $XLB
3. Industrials - $XLI
4. Utilities - $XLU
5. Healthcare - $XLV
6. Financials - $XLF
7. Consumer Discretionary - $XLY
8. Consumer Staples - $XLP
9. Information Technology - $XLK
10. Communication Services - $XLC
11. Real Estate - $XLRE
Risk & Reward
Risk management is a traders #1 job. Always look at the risk first before the reward. In the short and long
term, it’s about protecting capital, not making money. You can make all the money you want but if you don’t
know how to keep it, it is useless. Before entering a trade, you must know where to put your stop loss and
where to put your take profit.

Where to put stop losses: Whatever timeframe you’re trading on, put your stop loss either at the low or
high (depending on long or short) of the previous candle before the live candle or at the low or high of the
live candle.

- Once up 5-10% raise your stops to breakeven then trail your stops
- Never let a green trade turn red

Always look for a 1:2 Risk to Reward Ratio or higher on a trade but market strategists find the ideal
risk/reward ratio to be 1:3

- Examples of 1:2 Risk to Reward Ratios: Stop Loss at 2% & Take Profit at 4%, Stop Loss at 5% & Take
Profit at 10%, Stop Loss at 7% & Take Profit at 14%, Stop Loss at 10% & Take Profit at 20%
Table of Contents for Technical Analysis

1. Four Phases of Market Cycles

2. Demand & Supply Zones
3. Volume Price Analysis
4. Bull & Bear Flags
5. Triangles
6. Types of Gaps
7. Base and Breaks / Darvas Box Theory
8. Volatility Contraction Pattern
 Four Stages of Market Cycles

Accumulation: Occurs after a drop in

prices. Process of buyers gaining control from
sellers which leads to markup.

Markup: Bullish phase of a stock’s life is

defined by higher highs and higher lows. This is
where you want to get long on breakouts and
after short-term pullbacks. Rallies are “innocent
until proven guilty”.

Distribution: Occurs after a prolonged price

advance. Sellers gain control of prices, which
leads to decline.

Decline: Bearish phase of a stock’s life. This

is where you want to be short, so look to sell
short fresh breakdowns after minor rallies have
exhausted themselves. Rally attempts are “guilty
until proven innocent”.
Example of the Four Market Cycle Stages
 Demand & Supply Zones

Supply and demand zones are a popular analysis

technique used in day & swing trading. The zones
are the periods of sideways price action that come
before explosive price moves, and are typically
marked out using a rectangle tool in the stocks,
forex or CFD trading platform.

What is a supply zone?

The candlesticks or bars that mark the origin of a
strong downtrend are called the supply zone or
distribution zone.

What is a demand zone?

The candlesticks or bars that mark the origin of a
strong uptrend are called the demand zone or
accumulation zone.
Example of Demand & Supply Zones
Example of Demand & Supply Zones
Volume Price Analysis
- The most important indicator after pure price is volume
- Volume is a quality indicator that completes the basic analysis for the 3 pieces of data
- Most trading systems do not use volume which causes problems for traders as the
market shifts short term bias, retraces, and changes to primary trend
- You should become so proficient at using volume that other indicators become
confirmation of volume and of course your candlestick buy signal
- Never trade without studying volume in great detail. Volume will reveal more about the
energy and duration of the run than any other indicator
 Bull & Bear Flags
Bull & Bear Flags are technical terms for Triangle They Out which is corrective activity
Triangle Patterns
Triangles are Inside Bar Consolidations on a higher timeframe

Main Triangle Patterns:

- Symmetrical Triangle
- Ascending Triangle
- Descending Triangle
- Ascending Wedge
- Descending Wedge
- Pennant
 Types of Gaps

There are 5 kinds of primary gaps.

1. THE COMMON GAP

2. THE BREAKAWAY GAP
3. THE RUNAWAY OR MEASURING GAP
4. THE EXHAUSTION GAP
5. THE ISLAND GAP
Gaps
● Gaps are price action that open higher or lower than the previous day’s
price action. Gaps look like blank spaces on the chart. Gaps are
significant price action that can signal the start of a strong trend that
could last for an extended period of time.
● Gaps provide the technical analyst with insight into the emotional level
of interest for a stock
● There are several kinds of gaps and recognizing the difference between
types of gaps will help you understand the potential for the stock’s price
action in the coming days, weeks, or months.
The Common Gap
- Is a small gap that occurs frequently. These gaps usually fill within days.
- Common gaps do not have any particular importance
 The Breakaway Gap

- Is a significant gap. It occurs when price jumps over a moderate to strong resistance level.
- Breakaways are important to recognize because they are often the first signal of a major move up.
- Breakaways usually occur in bottoming stocks
The Runaway or Measuring Gap
- Is the second gap that occurs during a strong trend
- This is called a measuring gap because it frequently occurs at the halfway point so, once
identified, the chartist can determine approximately how far the stock can continue to run
- This is a minimum of points it may run
The Exhaustion Gap
- Is the final gap in the series that warns early that the primary trend is at
risk of a major retrace or reversal of trend
- This is also a critical gap to recognize for all trading styles
 The Island Gap
- Is a series of gaps that form what looks like an island of price separated from the main trend
- This can be an early warning of an impending trend reversal
- During value-oriented markets that form long platforms, gaps occur frequently as stocks
suddenly jump out of these long sideways patterns
- The longer the sideways pattern the stronger the subsequent price action will be
- This is a type of velocity move that position traders can enjoy
Base and Breaks / Darvas Box Theory

- This refers to the ‘box’ that you can draw around a tight sideways trading range or platform. Position
traders rely heavily on platforms for lower risk entries. The pop out of the box buy signal indicates that the
sideways or platform is completed and the stock is going to resume its previous trend.
- They have strong velocity behind the move, particularly if the platform took a long time to build, or is an
earnings release day platform
- Darvas box theory is a trading strategy developed by Nicolas Darvas that targets stocks using highs and
volume as key indicators.
- Darvas' trading technique involves buying into stocks that are trading at new highs and drawing a box
around the recent highs and lows to establish an entry point and placement of the stop-loss order. A stock
is considered to be in a Darvas box when the price action rises above the previous high but falls back to a
price not far from that high.
Volatility Contraction Pattern
What is the Volatility Contraction Pattern?

The Volatility Contraction Pattern, or VCP, as it has come to be known, has been popularized by Mark Minervini in his
books Think and Trade Like a Champion and Trade Like a Stock Market Wizard. The VCP, which dates back to Richard D.
Wyckoff’s “wave pattern,” carries a high rate of success when executed properly. It essentially looks like a bull flag. Many
successful traders may refer to the pattern as simply a “high tight flag.” However, that pattern implies certain criteria
that may not fit the VCP.

What Minervini discovered in his analysis of some of the market’s biggest winners was their tendencies to pause during
new uptrends. This pause created a coiling action after the initial upward force. It also offered a low-risk opportunity to
jump onboard for the next leg up.

VCP Setups Consists of the Following:

1. Strong Underlying Demand (Prior Uptrend)

2. Recent Supply Pressure (Profit taking)
3. Diminishing Supply & Decreasing Volume (Volume Drys Up)
4. Decreasing Volatility (Base Forms)
5. The Breakout (Backed by Volume)
Example of Base and Breaks / Darvas Box
Example of Volatility Contraction Patterns
Example of Volatility Contraction Patterns
Example of Volatility Contraction Patterns
Example of Volatility Contraction Patterns
LEARN TRADYTICS #ALGOFLOW
Algo Flow - Options Flow From A New Lens
https://tradytics.com/blog/algo-flow-options-flow-from-a-new-lens

1. What is AlgoFlow? (Overview)

2. Bullish vs Bearish AlgoFlow
3. AlgoFlow Divergences
4. Divergence Plays
a. As Large as you can find
b. Time Frame Agreement
c. Additional Due Diligence
d. Confluence is the Name of the Game
e. Know your timeframes
5. Case Studies
6. Trend Following Plays
7. Final Thoughts and Limitations

Videos:

- https://www.youtube.com/watch?v=nqqzw703dC0
- https://www.youtube.com/watch?v=12Mup6tjoWg&t=1s

How to combine #THESTRAT with #ALGOFLOW: Look for #AlgoFlow divergence plays then use
#TheStrat to enter on a reversal into the direction of the Algo Score.
 THANK YOU!
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