Diaper Trade

This is my single favorite trade. You can chart this on a blank chart with no other indicators. This is basic support and resistance.

These show up all day long on a 5 minute chart. You are not going to get rich making 10-20 handles on these trades, but they can provide you with steady income.

Stuck longs. These are people that bought and area and it very quickly sold off from that area. They decided they knew it all and did not honor their stops. The market has sold off and they are praying and wetting their diapers hoping price gets back to that level so they can get out and get their money back. You could take advantage of their fear with a short order where they got stuck and get a few tics or a handle out of it as they cover their bad positions.

On this chart that is around 2564

ES 03-19 (5 Min)  1_7_2019diapertrade.jpg

You had a similar setup with stuck shorts around 2538ish. You could place a waiting long order at that area and expect to gain a few tics as the stuck shorts cover.

Do not get greedy with this setup. Take 2, 4, 6 tics and get out or scale out and move your stops to your entry level after the first scale.

Practice in sim first.

5 thoughts on “Diaper Trade

  1. How would you enter this trade, would you use a market order or use the D.O.M, and place a buy order on the D.O.M. Ahead of the price?

    Then how would you exit the trade, use a sell the market order or buy the Bid, or Sell the ask?

    Also do recommend any books or videos that go over how to use level2 or time and sales.

    Thank you

    1. I see these on the chart and place a limit order at the place I want to take the trade. I can do that on a DOM, Chart or the order entry panel.

      I use the same exit strategies for all of my trades. I take 50% off at 4 tics, 25% off at 8 tics and 15% off at 12 tics. My original stop is 12 tics and it moves to my entry price as soon as the price moves 4 tics away from entry. Whether I get filled for my exit or not. It’s all automatic. My entire trade plan is designed to make that first 4 tics with the goal of getting runners in place for more.

      These trades are usually in and over pretty quickly, usually under 60 seconds. I close them out win or lose if they do not complete in 3 minutes or less.

  2. Hey Kheldar,
    I have been practicing this trade on sim for a short 2 days now, and it is a great setup. Thank you for sharing. I took a couple of trades today with mixed results, after a great 3/3 day yesterday. I’m wondering if I understand it correctly, and whether there are any contextual criteria you use to bolster your decisions?
    Right now I see the setup as a limit order, at the BO point of a channel or TR, where the BO candle is many times larger than the one which proceeded it.

    I have my position set to scale out the first profit at 4 ticks, at which point the stop moves to break even. Usually, the stop moves up before taking any profit, as the scale out limit order normally takes 5 ticks to fill.

    Thanks Kheldar,
    Kyle P.

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