If you are not in the Discord room, please email me (maoxian at gmail) for an invite.
The Set-up
In the Discord room, there is a Thread titled “First Red Day Set-up,” where we have tried to hash out exactly what this means and how to play it. One thing everyone agrees on is that “First Red Day” is a dumb name.
The basic idea is that after a multi-day run (minimum three consecutive up days, minimum move of XXX%, generally rising volume), one should anticipate a reversal day and significant down move. This is a new set-up to me and I’ve been trying to learn how to execute it. We can all learn something new together, I like to think.
The Trigger
The “trigger” for the trade is that today’s open must be below the previous day’s close. If today’s open is below the previous close, then one can simply short the opening print. Mall Cop suggests shorting the break of the first one minute or five minute low, but it doesn’t really matter.
The Stop
The stop is the tricky part. I believe Du Xiuxian suggests placing a stop above the “value area,” or “volume block” of the previous day. One could also use the previous day’s high as one’s stop, but I hate using “obvious” spots like that. One could also use some arbitrary fixed percentage above one’s entry. Always remember the old joke that the answer to the question of where to put your stop is: How much money do you want to lose?
The Target
Expect price to return to the 10-day simple moving average in short order (yes, a pun). It could take one to three days, or even longer, to get there. Be patient. That 10-day SMA target is courtesy of Mall Cop.
Keeping an Eye on THTX
I will be watching THTX on Monday since it has “set up” and I will take the trade if it happens (gaps down at the open). Since I’m unfamiliar with these plays, I will take a $10,000 or $20,000 position as a trial and use a very wide stop. I will post the results in the Discord room and may publish a follow-up post here, assuming the trade is profitable. If it is unprofitable, I will never mention it again. Just kidding. Losing money on it will also be instructive.
Click on the chart to enlarge it
Again, if you are not in the Discord room, please email me (maoxian at gmail) for an invite.
EOD 9/11/2023 UPDATE
THTX did not gap down on the open so there was no play today. Volume dropped off considerably so I’m not sure if a gap down open tomorrow would qualify it, but I’ll certainly will keep an eye on it and report the executions I make in it, if any.
