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5 Trading Tactics Velez
5 Trading Tactics Velez
an introduction to
trading for a living
Written by:
Oliver L. Velez, CEO
Velez Capital Management, LLC
Table of Contents
a complete guide to trading for a living
Chapter 1: Who is Oliver L. Velez
Trade for Life™
Chapter 2: Velez Capital Management, LLC (“VCM”)
Reproduction or translation of any part of this work beyond that permitted by section 107 or 108 of the 1976
United States Copyright Act without the permission of the copyright owner is unlawful. Requests for permission
or further information should be addressed to the Permissions Department at O.L. Velez Trading, Inc.
Neither Oliver L. Velez nor Velez Capital Management, LLC is advising anyone to trade or use any system
illustrated in this course. These are educational examples of science of system testing and development that
Mr. Velez and Velez Capital Management, LLC want to share with you. None of the information illustrated in
these examples is to be construed as offers to buy or sell commodities, stocks, or any other financial
instrument. None of the information presented purports to be a complete statement of all material facts related
to trading.
Also, simulated performance results have certain inherent limitations; the results do not represent actual
trading. Since many of the trades in this series have not been executed, the results may have under or over
compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is
being made that the systems, methods or ideas shown in this course will produce the results that are described
or illustrated.
This publication is designed to provide accurate and authoritative information in regard to the subject matter
covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering
legal, accounting, or other professional services. If legal advice or other expert assistance is required, the
services of a competent professional person should be sought.
From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a
Committee of Publishers.
Active trading is an activity that possesses a high level of risk and may not be suitable for everyone.
Who is Oliver L. Velez?
Velez Capital, LLC
a private equity trading firm • Founder & CEO of Velez Capital Management, LLC. (“VCM”)
Tools & Tactics for the Master Day Trader is designed to help active
self-directed traders gain the knowledge and acquire the tools
necessary to approach the markets with intelligence and a well
thought out trading plan. This no-nonsense, easy read is meant to be
referenced by traders every trading day and covers everything from
battle-tested trading strategies to intuitive insights on psychology
and discipline. Proving once again that the best teacher is
experience, Tools and Tactics for the Master Day Trader will help
any trader with the technical skills, market knowledge, and
confidence needed to increase the odds of achieving more winning
trades and capturing profits.
Accolades for Oliver L. Velez
a complete guide to trading for a living
Trade for Life™
Oliver L. Velez has been favorably mentioned and/or ranked #1 by virtually every key
medium in the industry. Dow Jones called Mr. Velez, “the messiah of day trading.”
“VCM”
An Introduction to
Velez Capital
Management, LLC
• VCM currently has four offices around the globe, with two
more coming soon: Moscow and Bogotá, Columbia.
• Our profits and trading volume increased 700% last year, and
we were a top 10 NYSE liquidity provider for NASDAQ.
Open = 40 Close = 38
Low Low
Every individual bar represents a battle that was fought by two groups, the bulls and
bears, the buyers and sellers. When the close is above the open, the bulls win, producing
the color green. When the close is below the open, the bears win, producing the color red.
How much each side wins is determined by how much green or red they produce. In other
words, the wider the distance between the open and close, the greater the win. Quite
naturally, the group winning the most bars is dominating the stock. Trading Tip: Most
successful trades are usually in sync with the winning side.
“VCM”
Market Law #1”
3 to 5 Bar Rule
VCM Quote: “If you believe it likely to have a definite bullish or bearish effect
marketwise, don’t back your judgment until the action of the market itself
confirms your opinion.”
- Jessie Livermore
VCM Market Law #1
a complete guide to trading for a living
Trade for Life™
Market Law # 1:
During normal market environments, stocks and other tradable items
cannot move in the same direction more than 3 to 5 bars in a row.
2) Neither the bulls nor the bears can win more than 5 battles
(bars) in a row. After a 3 to 5 bar rally, the bears usually quickly
regain control. After a 3 to 5 bar decline, the bulls usually quickly
regain control.
3) Lastly, this law can be said this way: “After 3 to 5 green bars in a
row, the VCM Trader should look to take advantage of an upcoming
series of red bars. After 3 to 5 red bars in a row, the VCM Trader
should look to take advantage of an upcoming series of green bars.”
VCM’s 3 to 5 Bar Buy Rule
a complete guide to trading for a living 1) 3-5 Bar Decline – Stocks in strong up trends, as well as clearly defined sideways trends tend
to rebound after a 3 to 5 bar decline. This tendency often sets up nice trading opportunities.
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Buy
Buy
r20ma Buy
r20ma
r20ma
Trading Notes
In each of the scenarios above, the VCM Trader would be looking for a tradable rebound to the
upside, once the high of a prior bar has been taken out. How much of a rebound would depend on the
answers to several key questions such as: a) is the 3-5 bar dip occurring in an up trend, down trend or
sideways trend; b) are any of the most powerful reversal signs present; c) how far away is the nearest
area of resistance; d) was there a volume surge that took place toward the end of the decline; e) where
is the dip in relation to the 20ma; and f) is the current decline potentially bottoming at or around one
of the key reversal times? The answers to all these questions are covered in the many trading concepts
taught in future chapters and throughout our 5-day live trading labs.
VCM’s 3 to 5 Bar Buy Rule
a complete guide to trading for a living 2) 3-5 Bar Rally – Stocks in strong down trends, as well as clearly defined sideways trends tend
to back off after a 3 to 5 bar advance. This tendency often sets up nice trading opportunities.
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d20ma
d20ma
d20ma Short
Short
Short
Trading Notes
In each of the scenarios above, the VCM Trader would be looking for a tradable pullback to the
downside, once the low of a prior bar has been taken out. How much of a pullback would depend on
the answers to several key questions such as: a) is the 3-5 bar rally occurring in an up trend, down
trend or sideways trend; b) are any of the most powerful reversal signs present; c) how far away is the
nearest area of resistance; d) was there a volume surge that took place toward the end of the rally; e)
where is the rally in relation to the 20ma; and f) is the current rally potentially topping at or around
one of the key reversal times? The answers to all these questions are covered in the many trading
concepts taught in future chapters and throughout our live 5-day trading labs.
“VCM”
The Three Major
Charting Windows
VCM Quote: “Wall Street never changes. The pockets change. The stocks change.
But Wall Street never changes, because human nature never changes.”
- Jessie Livermore
Three Trading Time Frames
a complete guide to trading for a living
1) 15-minute Chart – This time frame will be used primarily for trend analysis
and support and resistance reference points. While VCM Traders do takes
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trades on it from time, its use as a gauge of the stock’s power and its
overbought-ness or oversold-ness is unrivaled. With that being said, trades on
the 15-minute chart do tend to be the cleanest and the truest. In a sense, for
the professional trader earning a living via the markets, this time frame would
be considered the “core” one, for longer term trades.
2) 5-minute Chart – This time is the VCM Trader’s number one staple. If there
was only one time frame with which to make a living, it would be this one. It
perfectly sits between the 15-minute, which can be a bit to long, and the 2-
minute, which can be a bit too noisy at times. The patterns we trade at VCM
appear frequently enough in the 5-minute window to keep us active, yet
infrequently enough to prevent us from over trading. This is “the” one, “the”
time frame to master.
3) 2-minute Chart – This fast moving chart is a god-send when the market is not
producing clear signals on the other two time frames. It’s also useful if and
when the entry and/or exit points dictated by the 5-minute or 15-minute chart
are too far away or unclear. Dropping down to the 2-minute chart for a finer
entry or exit will usually provide the alternative. We call this taking an x-ray,
or looking inside the stock.
15-minute Chart
a complete guide to trading for a living The 15-minute Chart should always have the
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s20ma and the and s200ma displayed.
Gap Reversal
200ma
This time frame can really deliver some very healthy profits. The only caveat is that plays taken on it
tend to last for 30-minutes to 1-hour. The more active traders will find it hard to be patient unless
multiple plays are being managed simultaneously. This time frame is great for S&R analysis.
The 5-Minute Chart
a complete guide to trading for a living
Trade for Life™
The 5-minute Chart should always have the s20ma
and the and s200ma displayed.
200ma
The 5-minute Chart is by far the most traded time for VCM Traders. It sits nicely between the 15-
minute, which can be a bit slow, and the 2-minute, which can at times be a bit too noisy.
Charts Courtesy of Realtick®.
The 2-Minute Chart
a complete guide to trading for a living
Trade for Life™
200ma
20ma
The 2-minute chart is actively used to refine entry and exit points. It offers the deepest insight and
smallest risk of the three time frames we actively trade. Stop outs can be frequent in this time
frame, but scalper traders will always be well served here.
“VCM”
A Minor Charting
Window
VCM Quote: “Wall Street never changes. The pockets change. The stocks change.
But Wall Street never changes, because human nature never changes.”
- Jessie Livermore
The 1-minute Chart
a complete guide to trading for a living
Trade for Life™
200ma serves
200ma as resistance
During flat markets, VCM Traders drop down to
the 1-minute chart to play the bidding and
offering game. They buy in a range below the
20ma and sell in a range above the 20ma. Break
Offer/Sell Zone
20ma
Trading Tip: Once the 20ma halts the price decline, resistance is often broken.
a) Trade with the 20ma - Most of your trades should be in sync with the 20ma.
If the 20ma is rising in a smooth fashion, your focus should almost always be long.
Conversely, if the 20ma is declining in a smooth fashion, your focus should almost
always be short. If the 20ma is flat (f20ma), your focus should be to scalp with the
VCM “bid and offer” approach.
b) Use as support & Resistance – If and when the 20ma is rising, it will serve as
strong support. If the 20ma is declining, it will serve as strong overhead resistance.
Look for buys at or near a r20ma. Look for sells/shorts at or near a d20ma.
d) Use as a magnet – Stocks cannot remain extended too far above or below
the 20ma. If and when stocks get too far, a violent snap back is eminent. This
is when the VCM Trader can intelligently look to take advantage of a counter trend
move .
Trading Tip: Literally, a VCM Trader can use the 20ma to earn his entire livelihood in the market.
The Power of the 20ma
a complete guide to trading for a living The picture of power is made up of the following:
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1 – Rising Stock, making higher highs and lows;
2 – Smooth Rising 20ma
3 – Smooth Rising 40ma 20ma
4 – Even Space between 20ma & 40ma
40ma
The 20ma begins to contain the price here.
Trading Tip: Make sure all VCM Trading Tactics occur at strong support locations
20ma
Trading Tip:
Holding on to all or part of your trade as long as the
stock remains below the 20ma is a very effective way
to maximize your gains. However, once bases start to
form toward the end of the day, its time to go home.
Short Here
20ma
Trading Tip: SS
2
3
40ma
Volume Surge
test
Chart Courtesy of Realtick®
2-min Downtrend
a complete guide to trading for a living
Trade for Life™
200ma
20ma
a) Flatness is king: - While the 20ma is most powerful when it is rising and
declining (trending), the 200ma is most powerful when it is flat (trend-less).
d) Use as a magnet – If a stock and its 20ma get too far above or below the
200ma, a major reversal is usually at hand. This is when the VCM Trader can
look to take advantage of a counter trend move. In other words, it’s this
scenario that allows for intelligently going against the prevailing trend.
Trading Tip: VCM Traders know that 200ma plays call for bigger positions
The Flat Mighty 200ma
a complete guide to trading for a living 2
Trade for Life™
GBI
Buy RBI BO
3 6
20ma
2
Buy
h
200ma
1
*Target is always the 20ma
The above chart offers the OLV Trader multiple buy opportunities: 1) Gap Plus (gap on the
200ma and major price support); 2) Buy Set-up at the r20ma; 3) RBI (Red Bar Ignored).
Charts Courtesy of Realtick®.
The Flat Mighty 200MA
a complete guide to trading for a living
Trade for Life™
200ma
A flat overhead 200-period MA often serves as major resistance. Note how the stock
started ignoring its 20-period MA around mid-day. What do you notice now?
Charts Courtesy of Realtick®.
The Flat Mighty 200MA
a complete guide to trading for a living 200ma
Trade for Life™
3GBs
20ma
A flat overhead 200-period MA often serves as major resistance. Note how the stock
started obeying the 20ma mid morning. What do you suspect is the next move?
Charts Courtesy of VCM Trader Pro.
“VCM”
Trading Tactics
Putting It all
Together
Trade For Life™
a complete guide to trading for a living
Velez Capital Management, L.L.C.
The Trading Strategy
a complete guide to trading for a living
The Buy Methods:
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1) Buy Green Bar Reversals (GBR) or Bottoming Tails (BTs) at or near the
rising 20ma. – This is only to be done if the underlying stock is demonstrating
the “picture of power” to the upside (rising stock; rising 20ma above 200ma).
The GBR must occur at or near the rising 20ma, otherwise its occurrence is not
all that important. Tip: Breakouts can also be played at or near the r20ma.
2) Buy Green Bar Reversals (GBR) at or near the flat 200ma. – This is only
done if the stock has fallen back to the 200ma from a rather far distance.
Gradual erosion back to the 200ma is not what we are looking for. A sudden
drop or collapse back to a flat 200ma is what is preferred.
2) Sell/Short Red Bar Reversals (RBR) at or the flat 200ma. – This is only done if
the stock has rallied back to the flat overhead 200ma from a rather far distance.
A slow, gradual rise back to the 200ma is not what we are looking for. A sharp move
back to a flat 200ma is what is preferred.
2-minute Micro Trading
a complete guide to trading for a living Trading Tip:
Trade for Life™
Intra-day Buy Criteria Use stops at red lines or
1. r20ma use a trailing stop based
2. r20ma > 200ma on the r20ma
Buy all PBSs & PBOs
Buy
Wide Distance*
Buy
Stock ignores the 20ma
20ma
Buy
VCM
VCM
3/9/07 & 3/12/07
NY Prop Group