1. What Is the “TPS System”?
This is my bread-and-butter system, and it makes up 80% of the trades I take. TPS stands for “trend, pattern, squeeze.” I look for a stock that is TRENDING up, near recent or even 52-week highs. Then I look for my PATTERN in that stock of a new high, pullback and sideways consolidation under that high. And finally, I look for a TTM SQUEEZE setting up in that consolidation period, which will allow me to make an entry in my buy zone. Basically, I’m looking for strong stocks that are consolidating, and I must have RED DOTS in the squeeze indicator. If these things line up, I can take a trade.
For more information, you can watch this video.
2. What Is a Squeeze (TTM Squeeze)?
A squeeze is an indicator on a chart that displays red dots when a stock is “resting” and can indicate a larger move coming in one direction or the other. Using the TPS system, I try to take a position in that stock during a squeeze, during the “rest” period, and hopefully catch the larger move up or down.
For more information, you can watch this video.
3. What Time Frame Charts Do You Use?
The TPS system can be used on any time frame, but the longer the time frame, the bigger the move. Also, this method works best in stocks that have volume rather than thin, illiquid names. I typically use a daily or 195-minute chart for swing trades that take a few days… down to a 5- or 10-minute chart for a short day trade. My standard time frames are weekly, daily, 195 minutes, 130 minutes, 78 minutes, 1 hour, 30 minutes, 15 minutes, 10 minutes and 5 minutes.
For more information, you can watch this video.
4. What Are the 8, 21 and 34 Exponential Moving Average (EMA) Lines?
These are the only moving averages I really use. I think of these as the “mean,” and stocks always move away from, and then come back to, the mean.
5. What Is the Volume-Weighted Average Price (VWAP)?
I use the VWAP to day-trade against. In a bullish setup, I want to be a buyer on a pullback to the VWAP. In a bearish setup, I want to be a seller on a move up into the VWAP. I use the VWAP on smaller time frame charts for day-trading. I don’t really use the VWAP when considering swing trades against larger time frame charts.
For more information, click here.
6. What Are Bollinger Bands?
I use Bollinger Bands as a great entry point – a great area to make a bet against, either long or short, with defined risk on a close outside the Bollinger Band. This strategy works on all time frames, but I’ve found it works better on daily charts. For example, a strong, trending stock will rarely test its lower Bollinger Band on the daily chart. But if it does, it’s typically a perfect buying opportunity.
For more information, click here.
7. Where Is Your “Buy Zone,” and Where Will You Stop Out?
Typically, my buy zone is between the 8 EMA and the 21 EMA on the time frame chart I’m playing. So if I’m playing a daily chart to the long side, I want to be a buyer when the stock price is below its 8 EMA and above its 21 EMA. In a more volatile market, I’m even more conservative with my buy zone and reposition it to between the 21 EMA and the lower Bollinger Band. Typically, my stop will be a close below the lower Bollinger Band or if the squeeze that I’m playing fires against me.
8. What Is Your Profit Target?
In most cases, the profit target is always the 127.2% extension of the high-to-low move of the price action within the squeeze that I’m playing. There are exceptions, and it will always depend on the setup, but in the typical TPS setup, I use Fibonacci extension targets. (See the Fibonacci Extensions section below.)
9. What Is a “Lotto Trade”?
It’s just what it sounds like – a lottery ticket. These are “fun” trades (when they work) because we’re trying to time a move in a stock with short-dated options, typically those that expire the same week or sometimes the same day. The idea here is that you don’t risk a lot of capital but go for very high percentage gains.
10. What Strike and Expiration Do You Usually Buy for Your TPS System?
Typically, I will go out a minimum of 30 days, or I’ll go into the next monthly options expiration series if I’m playing daily charts. For smaller time frame charts, you can go out two weeks. The general rule of thumb is this: When in doubt, go further out. There is really no downside, other than paying a little more for the option, to giving yourself more time in the trade. The more you get into the habit of going further out in time, the easier you will find options trading.
11. What Kind of “Option Spreads” Are You Looking For?
Option spreads are the price difference between the bid and the ask. As a general rule, I will stay away from anything over a $0.50 spread. However, it does depend on the price of the stock itself.
12. What Delta Do You Look For?
I try to shoot for options that are somewhere between delta 50 and delta 70. There are always exceptions, like lotto trades and trades where we’re positioning for a run into earnings. But typically, regardless of the time frame that I’m playing, I’ll go for between delta 50 and delta 70 options.
13. What Is Theta Decay?
Theta decay is a measure of the rate of decline in the value of an option as it approaches expiration. The further-dated option will decay slower than a short-dated option. This is particularly relevant to my lotto trades, as they decay quickly and we need to be “right” very quickly.
14. What Is “Short Float,” and Why Do You Like Stocks That Have It?
Short float is the number of shares that are held short as a percentage of the total shares being held. The higher the short float (15% to 20% and above), the faster a stock may move up, as those shorts cover when it does move (covering shorts means buying). So taking a position on a bullish stock in a TPS setup that also has a high short float strengthens the odds that it will take off quickly.
15. How Do You Scan for Stocks With a TPS Setup?
There are a variety of tools you can use to scan for TPS setups. I like to use Finviz, which is a free stock scanning tool. Many brokers have scanning tools built into their platforms you can also use. No matter what scanner you use, I’m scanning for the following criteria: stocks above $30, average volume above 100,000, stocks 0% to 10% below their 52-week high, and TTM Squeezes on the daily or 195-minute charts.
INTERNAL INDICATORS
1. What are ticks?
Ticks are real-time indications of buying and selling across the market. Simply put, a tick is the minimum movement either up or down of a security. These are cumulatively measured throughout the day. When the cumulative tick count is above 600, it indicates strong buying. And when it is below negative 600, it indicates strong selling. Readings between these levels are just “noise.”
2. What Is the Advance/Decline ($ADD) Indicator?
The advance/decline indicator measures the net advancing stocks versus declining stocks on the New York Stock Exchange. It is measured as the number of advancing stocks minus the number of declining stocks. I look for this indicator to be rising, showing a favorable market for long calls.
3. What Is the Volatility Index (VIX)?
This Volatility Index shows the “fear” level of the market, and of institutional buyers in particular. I look for this indicator to be trending down, showing a favorable market for long calls. If it’s trending higher, this means people are paying more for out-of-the-money puts (hedging longs), and this is a bearish reading.
4. What Is the Put/Call Ratio ($PCALL)?
The put/call ratio measures the amount of put activity relative to call volume currently in the market. I watch this indicator during market declines. If the number gets above 1.0, that means the market is heavy on puts and we could see a short-squeeze rally. However, if the market is falling sharply and the ratio is, say, 0.85, I have no interest in buying, as that indicates that the majority is still buying the dip. I don’t want to trade with the crowd. I’d rather wait for the reading to get extreme and then take the opposite side of the trade.
5. How Do You Use These Internal Market Indicators to Make Trading Decisions?
I use a combination of these market indicators to make intraday buy and sell decisions. They are very powerful tools if you know how to use them. They tell me what is happening “behind the scenes.” Rather than just using price action, I can have a hint into what the money is actually doing and what it may do next.
FIBONACCI EXTENSION (PROFIT TARGETS) AND SYMMETRY
1. What Are Fibonacci Extensions?
Fibonacci extensions are very powerful mathematical targets, measured off a recent pullback in a stock. I like to take a position in the stock on a pullback with squeeze dots and take profits at the 127.2% extension of that pullback.
Check out this page and video for more info on Fibonacci Extensions.
2. What Do You Mean When You Say the “1272” or “1618” Profit Targets?
These are quick abbreviations for my primary and secondary profit targets on most TPS trades. Using a Fibonacci extension tool, I will set my primary profit target at the 127.2% (1272) extension. If I feel like the stock has more run room, I may leave a small portion of the trade on to the 161.8% (1618) extension.
See this video for more information.
3. What Is Symmetry, and How Do You Measure It?
Symmetry is another Fibonacci tool that helps measure the size of a recent pullback or run-up and compare it with the current pullback or run-up. The market tends to move in predictable patterns, so this allows me to take bets off similar levels… with a stop just below or above that level. The market might at first seem random, but if you start actually measuring moves and comparing them with one another, you will see that the market, at times, is actually quite predictable.
See this video for more information.
4. What Is the Name of the Fibonacci Book You Recommend?
It is called Fibonacci Trading: How to Master the Time and Price Advantage.
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March 2023
Legal Note: Nothing published by Monument Traders Alliance should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after publication before trading on a recommendation.
Any investments recommended by Monument Traders Alliance should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Protected by copyright laws of the United States and international treaties. The information found on this website may only be used pursuant to the membership or subscription agreement and any reproduction, copying or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Monument Traders Alliance, LLC, 14 West Mount Vernon Place, Baltimore, MD 21201