I Simplified Qullamaggie's Breakout Entry Strategy into 12 Rules

Hey guys, hope you and the family's are doing well. A couple of years ago, I filmed a Kuala Maggy video on his strategy and it's had over 300,000 views. What I want to do in this video though, is take you through how I applied what I learned from Kuala Maggy with breakouts and distilled it down to a 12-point checklist that I use and then how I adapt the trade management when we get into really a choppy hostile market environments for breakouts. I'm going to take you through my trade from yesterday in CRDO, take you through the 12-point criteria. So, hopefully it can help you with your breakout trading. Market search at today's video sponsor, they're my go-to resource for analyzing company fundamentals. If you're interested in a discount to try, then you'll find a link to that in the description and the comment section below. So, let's just do a high-level overview and then we'll start diving into the details with CRDO and the breakout trade on the 6th of July. So, in terms of the breakout, you can see here, this is the ORB candlestick. So, 5-minute opening range breakout. As you know, Kuala Maggy will either use the 1-minute, the 5-minute, the 15-minute, potentially the hourly as well. I really like the 5-minute, just a really nice balance with my personality. So, I don't think there's necessarily a right and wrong with the time frame that you use, it just has to align with your personality. What I find quite nice with the 5-minute is it's not too much noise like you're going to get on say the 1-minute or the 2-minute, but it's still enough noise, but you can also capture, I think, the bulk, if not all, of intraday uptrends as well, especially with opening drives when the most powerful stocks in the market really start powering higher. So, this is actually a coded indicator as well. Search my name on TradingView, you'll find it. US opening a 5-minute candle highlighter. So, it goes green there on my 5-minute ORB candle. Okay, so my entry is then going to be through the high. So, there's two ways to think about this. You basically have the signal candlestick and then you have the entry candlestick through the high of the opening range breakout and then trend trend trend trend trend and then I start going lower the bar lower the bar lower of bar when I see it stalling, hits the 20 there, ADR actually exceeds it, and then rolls over there, takes out the low. That's my exit there, initial stop low of day. But, let's now start breaking it down one part at a time. So, again, I've studied many great traders and kind of amalgamated many things that I've learned from them, learned a lot from Qala Maggy with breakouts. So, let me let me run you through what I'm looking at here, okay? Is the stock above all key daily moving averages? So, for me, when I trade ORBs, what I've noticed when I study my results, when I study the best of the best stocks, to be above all key daily moving averages. This is just applying the 80/20 principle to it. So, I'm looking for a stock above all key daily moving averages. Those on my chart, black line is a 10-day, blue line 21-day, purple's the 50, gray 65, and the red down here, that's the 200-day. So, yes, it is above all key daily moving averages. Also coded an indicator on TradingView, again, it's free, daily moving averages on intraday charts. You see this black line running across here? That is actually the 10-day EMA price level. So, let's call that kind of 255, and you can see it's there on the daily chart, and it's here in today. And then the 21-day is just here as well. So, tick to that one yep. Is it above all key daily moving averages? Now, this one here is really important, okay? And if you study many of the great traders, they'll ramble on and on and on and on about this and just kind of beat the drum, beat the drum, that relative strength on the daily chart is so important. Trying to trade the strongest stocks in the market. So, is there relative strength on the daily chart? A couple of different ways to look at that. We can look at it in terms of proximity to key daily moving averages. So, if we take a look at, say, the triple Qs down here, so the Nasdaq 100 ETF, what do you notice? Well, this purple line here, as I said, that's the 50-day simple period moving average. And we can see the triple Qs in late June went down, tested around the 50, and then also on the 2nd of July, tested around the 50. Now, the question is, did CRDO during that time period, so in here, did that come down to the 50? No, it actually just holds on around its 21-day EMA. A couple of kind of undercuts there, but what I call a to monitor, bounce, reclaim. Can you can see it's holding up there relative to what the index was doing. We could also go and look, and this is a real clue here. Take a look at this really big down day. I'm going to put a big arrow to it on the 9th of June for the index. That's a big old flush day, yeah? Take a look at CRDO. So, think about this, guys. There's huge selling, and I'll tell you what, I'm even going to point to the two sessions prior as well. So, that's the 5th of June and the 9th of June, okay? Take a look at this. So, what we're looking at here, the 5th of June and the 9th of June. These are two really ugly days for the index, especially down here at the low. And I was done loads of good kind of mean reversion trades down here, but that's beside the point. When it's down here on the lows, it's looking ugly. And note the pops in the volume. Look at this big ugly day here for the Qs. Look at this big ugly day here for the Qs. Look at CRDO. It's literally trying to go up. Think about that. The index is doing this and CRDO's doing that. Night and day. Chalk and cheese. One's going one way, one's going the other way. And it's holding around the 21-day. And a really key spot for look for institutions and relative strength. So, when we see a lot of selling pressure with the indexes we see strength for CRDO. Relative strength. So, so, so important. So, you can look at price relative to moving averages. You can look at big down days for the indexes. Even this day here, if I go 17th of June, I'll just put a line to it like that, for brevity's sake. Look at this. Another ugly day there for the index, 17th of June, okay? Closes below the 10-day, rolls out of bed, opens on the low, closes weak. CRDO, it's like a little doji bar closing above the 10. More strength. So, when we see downside pressure for the indexes, CRDO's going, "Don't care. Don't care. Don't care. I want to go up. I want to go up. I want to go up." So, is there relative strength on the daily chart? Absolutely. Now, when you start factoring in like the ADR percentage, there's only like 10 to 20 stocks really at any one time that are kind of liquid, move as you're going to see how we go through this criteria here. They're strong on the daily charts. It's really trying to have a concise list of leading stocks, then meet what you deem are optimal setups, which I'm going to be taking you through in my view why CRDO was. Is there strength from a technical position of the stock relative to yesterday? So, the prior session high of day, low of day. Just just something that I've noticed and observed as well. When you go and study these leaders, what I'm looking for is the stock stronger from a technical position relative to yesterday's high of day or low of day versus the index. So, if you see with CRDO here, it is marginally, okay? If you just mark yesterday's high of day or the prior session high of day and low of day. And actually, what I'm really going to dial in on is where the open was in the prior session. So, looking at it there and then looking at the open there. Do you see how the triple Qs at this point here, it hasn't got above the open at the prior session. So, Qs opens there, closed down here. It's there. Whereas actually, CRDO on the breakout is actually through where the open was with the prior session and closer to the prior session's high of day. So, a little nuance there, but that's something else that I've just noticed. The creme de la creme, best of the best breakout trades do, they are stronger relative to the prior session's high of day, low of day. Is there intraday relative strength at the ORB signal versus the index? Again, if you watch that video, you know about opening range breakouts for the entry method. 1-minute 5-minute 15-minute 30-minute, 1-hour chart. As I said, I like the 5-minute chart. So, what I'm then doing, okay, is I'm looking for is there intraday relative strength at the ORB signal? So, I think about it as the signal candle, and then I also think about the entry candle when I'm taking the trade. Is there a continuation of relative strength and momentum? So, with CRDO here, opens near the low, push go, strong close, stronger bar, I I would say than the triple Qs in terms of closes nearer the high of the bar, less of a little tail, what I call a shakeout demand tail down here, indicating stronger momentum, stronger demand relative to supply. So, ticking the box there. Does the opening candle open very near the low and close very near the high? So, this bar here for CRDO closes very near the high, but it doesn't open very near the low. So, a bar like this would be a yes, cuz it literally opens on the low of that 5-minute bar, pretty much close on the high of the 5-minute bar. Now, why does that matter? Why is that important when we think about an opening range breakout? When we're thinking about a relative strength and momentum, because we want to see that buy orders are just taking out sell orders and pushing this thing higher. So, a bar like this signals instantaneous momentum, demand, strength pushing it higher. So, this because it trades down momentarily and then reverses, I'd say no to that. But, what I've just noticed when you study the creme de la creme, in essence, their opening 5-minute candles often look like that. Instantaneous demand. Buy orders flood the market, tell take out the sell orders, and push this thing higher. So, I'm going to put no. If I was feeling generous, I could do like a 0.5 cuz it does close right on the high of the bar, I suppose. But, we're going to say no to that. Is their group theme intraday relative strength at the ORB signal versus the index? So, CRDO comes into the semiconductor group theme. Yes, there was. AMD was strong at this time, Intel was strong at this time, couple of the other ones were also strong at this time, as well. So, it's going to be a yes there. Now, that's important because we're looking for group theme confirmation. What you may notice is the market is dominated by algorithms and now artificial intelligence powering the algorithms, but it's also very thematic in nature. So, what I mean by that is you tend to see quick rotations nowadays, again because of the algos, where you can have suddenly solar stocks are really strong, and semiconductors are really strong. And then it's the AI infrastructure related stocks, then it's the clean alternative energy stocks. So, what I'm looking for there is for momentum, demand, relative strength to be flowing to that group or theme. So, I want to see that it's strong. Is it strong then stronger than others in its group or theme on the opening opening range breakout candle. So, is this bar here then stronger relative to its peers? So, if you think about the logic here, guys, we're looking for, okay, strong group, strong theme that session that's also ticking these boxes above all key daily moving averages so on and so forth relative strength on daily chart we're then looking for that group or theme to be stronger than the major index either the queues or the spy that day whatever is most applicable again for the queues I'm looking at mainly tech related stocks spy I'll use less tech related stocks like clean alternative energy precious metal miners solar stocks and things things like that maybe oil and gas stocks too. So we're then looking for strong group strong theme and then we're looking for okay is the leading stock that we potentially identified like a CRDO or an AMD or whatever it may be is that then also stronger than the theme. So the theme is strong and then is the stock even stronger than the theme. You see how we're really trying to get concise here and dial in quality quality quality. At the ORB entry price is the stock less than one times its 20-day average daily range percentage from its 10-day EMA. So this here you can search it just find it on TradingView it's nice and easy type in ADR basically percentage okay. So the ADR percentage this is the 20-day average daily range percentage of CRDO. So what does that mean? It means that the average range of CRDO over the last 20 days is 11.35%. Now why does that matter? Cuz it's really useful for us in knowing whether a stock is short-term extended both on the upside and the downside from the 10-day EMA that's the one that I like to use the 10-day EMA but also from an intraday trade management perspective because you can think about the ADR percentage as a fuel tank. So we'll come on to that a little bit later when I'm taking the exit here. CRDO had essentially exceeded its 20-day ADR percentage gets up to 13% versus say 11% here starts to wane a little bit in terms of the momentum supply shoot supply shoot doji the volume's dropping off there's less buyers up here you're running into prior sessions high of day as well. The major index is starting to stall a little bit as well so that's then the exit there. So I'm using it from a trade management standpoint but also rarely does a stock get over two times its 20-day average daily range percentage from its 10-day EMA for any duration of time. Like more than three to five sessions is very, very rare. So, I don't want to be targeting, say, a ORB trade up here. You see here? So, if we were to just go here to here, this is 18%. So, let's just call it about 1.5 times its 20-day ADR percentage, assuming it was the same at the time, and it It looks like it's going to be around about the same, doesn't it? Okay. So, I don't want to be targeting it up here. Why? Because rarely do stocks get that short-term extended from the 10-day EMA for more than three to five sessions. Where I think the real sweet spot is is being able to identify the best stocks in the market, the strongest stocks in the market, like a CRDO, and then when they're in closer proximity to their 10-day EMA. Like, I don't want to be buying up here. You guys have probably seen as well, if you study kind of classical chart patterns, flags, Darvas boxes, cup and handles, wedges, pennants, all of that stuff, right? The actual breakout point, if it's short-term extended from the 10-day, the failure rate is so high. So high. And the ability for it to mean revert, I This up here is kind of the classic breakout point, yeah? But I'm not buying up there. Short-term extended, back down it comes. You get a shakeout down here around it. So, I think the real kind of sweet spot is within one time, so it's above all key daily moving averages, but within one times the stock's own 20-day ADR percentage from the 10-day EMA. You can just go and study, right? Look at this extension here. What does it get to? 13%. What does it get to here? 14%. This one we know is 18%. So, the stock doesn't really get kind of mid-teens away from its 10-day EMA. That is literally what the character of the stock is telling you. Same with the triple Qs. Rarely does it get more than one times its 20-day ADR percentage away from the triple Q away from the 10-day EMA. There it gets to 2%. Here, it gets short-term extended. Let's call it 3%, so it's about 1.5 times. Back down it comes. At the peak here, it's around about 2%, which is around the 20-day ADR up both if you're upside and the downside. It's kind of like a rubber band. It goes this way, it goes this way. So, it gives you a much more contextual framework for how to be judging the stock, how to be analyzing the stock's own character. Has the stock any prior character of successful ORBs? Really simple exercise. I'll pull up the chart of the stock, and I will look back and go, "Great. It has a powerful 5-minute opening range breakout, and it goes on a nice opening drive trend. Even better, goes on big trend days, nice strong close. Fantastic." So, easy exercise to do. Does the stock that I am looking to trade like this setup? Does it move well from this setup? Answer for CRDO, yes. Is there no significant logical resistance within one R from the entry price? Now, with CRDO, there's maybe a little bit of local resistance here, but I wouldn't say it's significant. I think the more significant resistance is going to be coming in around these kind of levels up here, like closer to the $300 level, these highs in here, this area. Here. So, for me, the answer to that is no. Is there intraday relative strength versus the index on the breakout through the high of the ORB signal candle? So, as I alluded to earlier, I kind of break it down in two ways. I'm thinking about the opening range breakout signal candle, which is here, but then I'm also looking at the entry candle. So, as it then moves into a new high of day, is it continuing to display intraday relative strength versus the applicable major index? So, if we take a look here with the triple Qs, and we just go mark on this, what do you notice about the second 5-minute bar? Take a look at this bar here, and let's just turn that to a blue. And even take a look at the bar after that, being this bar in here. You see that? No new high of day, no new high of day. Where CRDO goes new high of day, and then look, another new high of day at 9:40. You see this bar here? Look at 9:40. Look at this, powering into new high of day, and another nuance here that you could be onto a good one, look at the volume going up. Up, up, up, up, up, up in terms of the volume. So, increasing volume equals increasing activity, and then we're looking for is it supply, is it demand? And the best gauges well, what is price doing, and is it displaying relative strength or not, and to what degree versus the index? Tick, tick, tick. See the difference? Do you guys see how detailed and see how nuanced this is? I spoke about in other videos of my trading lab. Okay, I have a 34-in curved monitor here, 34-in curved monitor over there, and then two 43-in 4K TVs. So, collectively, I'm looking at around about 100 charts. It's just over about 100 charts on the 5-minute time frame, and then I'm dialing in and looking for opportunities such as CRDA. So, I've already done my screening, covered that in a lot of videos, already done my screening, and then I'm dialing in and going, "Okay, what are the leading stocks doing? Where is the strength? Where are the money flowing? Where are the big opportunities today?" And then, in a minute, we'll talk about the trade management side of things. Uh so, yes, there is strength on the ORB uh through the height of the ORB on that entry candlestick. There is there fresh news on the stock being reacted to positive? That could be an FDA approval for a biotech company. It could be an earnings reaction. It could be a ward of a new contract. It could be something material in in in something material in that guard. On this session here, the answer to that is no. So, this then scores 10 out of 12. Now, for me, 10 out of 12 would be A. If it scores 11 out of 12 or 12 out of 12, it'd be A star. Nine out of 12 is a B. So, I'm really looking for at least ticking nine out of 12 boxes here. That would be a B. 10 out of 12, A. Anything over that, 11 or 12 out of 12, isn't A star. That's how I think about it. Also, then helps with the sizing of positions as well. Okay, how aggressive do I want to be here? What's my initial risk relative to the potential reward? Now, what's interesting about this market environment, if you take a look at the daily chart for the Qs, what do you see? Chop, chop, chop. All right, it's a choppy market environment. So, I I I personally advocate have a trading toolbox. Like, don't just stand there like a lemon. Do you know what I mean? Don't just stand there like a lemon. Have a trading toolbox and be able to adapt to the market environment that you find yourself in. So, if I notice that open drives like this from ORBS are then rolling over, well, that's really useful information. Now, I may not just do one isolated example, but I want to be aware of that and go, "Okay, if I'm seeing this and I'm seeing that the stock is really struggling to trend and it's pretty choppy and the index is just doing this, well, why would I not be aggressive in terms of just selling into that move?" There's times to sit and be a real swing position trader and there's times to be much more of a day trader more tactical in nature where I'm getting in, getting out, okay, rinse, repeat, go again the next session. Because the indexes are just doing this. Leading stocks just aren't really following through and it's choppy and they're giving back and then it's frustrating and then you have a big gain and then by the close you you kind of flat break even or it's come back down here. So, you got to know then how to trade in different market environments and you optimize your approach based on the market environment and what the stocks are telling you to do. Like how best to trade the stocks based on what they're doing, based on the market environment. So, I really hope you guys have liked that video. You like this kind of stuff, head over to my platform jackofallstocks.com. Thanks for watching. See you soon.