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Long Short Equity Trading System Setups

We have to consider the potential for a summer swoon as we end the month of May with technically and fundamentally overbought equity markets. On a down day with a very ugly PMI with levels not seen since May 2020, in the middle of the pandemic, we show how to take short trades in equities. Stock indexes have been very choppy as they take the average of many equities. There are always outliers with some moves that exceed the indexes in either direction and can often times generate smoother trends.

Today we setup a simple scan to see how Gap Continuation short trades would work with the following Scan Criteria:

  • Previous Day's Close > 100

  • Previous Day's Volume > 1,000,000 shares

  • Gap Down today >= -0.25%

Scanning all stocks, only five met the criteria:

  • DELL

  • VRT

  • MDB

  • DDOG

  • VEEV

Based on the video around mid-day, the signals generated about 10 points of profit.

This strategy is based on shorting the weakest stocks on a down day or going long the strongest stocks on an up day.

The strategy for shorts can take entry signals between 9:40 am - 3:00 pm EST, with a maximum of one trade per day, exiting at 3:55 pm EST. The stop loss is $3 per share. There is no profit target. It is a simple and basic setup. This is a strategy that can be customized using existing Tradestation exits for percentage profit targets and stop losses.

Access to the Scan Setups and the Equity and ETF Gap Continuation Trading System is available as an annual subscription.

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