Anatomy of a Swing / Trend Following Trade – $RIVN

How it got my attention, stalking it, waiting for it to set up, execution, and trade management.

Tools used for this trade.

• TC2000 (daily scanning for swing setups)
• Heikin Ashi and regular candlestick bars
• Sierra Chart (executing a more precise entry)
• Aggression (this is what I named it…custom coded indicator for Sierra Chart)
• Donchian Channels

Today I’m going to discuss the process of identifying RIVN as a potential swing trade. What initially got my attention, how I stalked it for an entry, what exactly was the signal that got me into this trade, and how am I managing the position.

First, I break the world of stocks that I’ll look at into three different scan groups.

• Mega caps
• Gainers (learned from Kristjan Kullamägi.
• IPO’s (5 years or less)

I scan each group for all stocks that has made a new 10-day high.

If it’s the first 10-day high after the most recent 10-day low then it goes into a watch list to monitor for a valid setup for entry. (I’ll discuss the different setups I use in a another post.)

How Rivian got my attention.

Rivian showed up in my IPO scan and the Gainers scan 10 different times since October 24th. The entry wasn’t until December 5th.

From the chart below:

1. First 10-day high after the most recent 10-day low. Now add it to a watch list to start stalking for a setup to execute. (Note on this below *1)
2. This is another 10-day high, but mostly irrelevant to me. It’s not the first 10-day high after the most recent 10-day low. Nothing has changed. Still stalking for a setup.
3. New 10-day low. Remove from watch list. It’s dead to me at this point. It could rocket past the high of #2 and I would have zero fomo. It would simply go back into the watch list.
4. This is exactly what it did. Made a new 10-day high after the most recent 10-day low. Back into watch list to stalk.
5. Sold off hard…but did not make a new 10-day low. Still in watch list.
6. This new high is mostly irrelevant to me…other than it’s signaling that it is done going down for now. Still looking for a setup.

For swing trades, I’m (almost) always looking for a chart pattern to breakout from. There are nuances to this stuff and sometimes an exact chart pattern doesn’t present itself. This doesn’t mean I won’t take the trade. That’s why trading is an art not a science.

In this case, RIVN started to put in a very nice flag / triangle. The actual chart pattern is not really relevant to me too much. I really just want to see that some sort of structure is building and it’s not just a wild west show on display.

I use Heikin Ashi bars along with regular candlesticks. I can get a more holistic view of what is happening with the structure with each chart I view.

See here, the difference in how they look on a daily chart. Note the nice chart pattern starting to set up.

Heikin Ashi

Regular candlesticks

Now that we’ve got a recognizable chart pattern that we can “break out” from…I’ll go down to the smaller time frames. I do this because when I get into trades, I want to time them so I can have the best potential risk / reward entry as possible.

This could be overkill for swing trading, but it works for me. I find that it’s a good skill to hone though, as it is absolutely essential for day-trading.

Now down to Sierra Chart. Sierra is incredibly versatile. First, what I like about it is that I can load any data that I want. If I’m looking at a stock to enter, I want to see ALL price action. I want to see how a stock traded pre-market and regular trading hours…for every day…not just the past two sessions. I don’t know about all other platforms, but in TC2000 you only get pre and post market data for the past two sessions. I believe TradingView allows to view all days. I don’t use it religiously though so I’m not sure.

I’ll start cycling through the lower time frames and see if anything sticks out like a sore thumb. In general, if I have to look too hard it’s not going to end well for me.

Here’s RIVN on 30min Heikin Ashi chart.

Same chart, just without Heiken Ashi.

Now a 15 minute Heikin Ashi chart

Then the same chart, without Heikin Ashi

Now the stock has my absolute attention.

1. New 10-day high after a recent 10-day low. (Note *2)
2. Obvious chart pattern on a higher time frame (daily) that we can “BREAK OUT” of. (sometimes an obvious chart pattern does not form on a higher time frame…this is why it’s crucial for me to also watch the lower time frames to find the pattern)
3. Obvious chart pattern that we can “BREAK OUT” of on a lower time frame that is “INSIDE” the larger time frame.

Now we just watch and wait. The very next day, December 5th we got what we stalked for…an aggressive move out of the smaller time frame chart pattern that was inside the larger time frame chart pattern.

The final piece of the puzzle…AGGRESSION…as seen here with the 15min bar going yellow. This means that the move was a combination of volume and speed that I want to see when I get into a break out trade like this.

I programmed what I want to see in Sierra Chart to paint the bar yellow. Generally I’d like to see the bar close yellow before I start a position. Many times the bar will paint and then un-paint numerous times because the condition is oscillating between true and false while the bar is still in the making. (Note *3)

It’s not just volume, but speed of the move that I’m interested in. I want the entire bar to be all about aggressive traders getting into the trade and I’ll just hop on for the ride.

Here’s a look at how I’ll manage the trade initially. For the first day, my entry areas and my initial stop.

Now where will I scale and hold? I have such hard a hard time holding onto full positions…it’s a struggle of mine. Very much a work in progress.

For now, I use Aggression bars on the 4hr time frame to begin to scale. As seen below. I’ll sell 1/2 into strength on a 4hr Aggression bar. This is serious strength that I’m selling into. The buyers can’t get enough when these bars print….the want it all and they want it all in speed. So let’s let them have some of our risk.

Now we have a 1/2 position left. I won’t move the stop here. I’ll leave it in place on the break out daily low.

We are going to let this ride and go back to our Donchian channels to exit. We could be in this trade for a very long time, or it could take us out tomorrow. It’s up to the market. At this point, I don’t want to think I know what it will do…because I don’t. We are just going to be around for whatever it does.

I choose to give a lot of room to my trades when letting them run. To some this would be too much, to others this wouldn’t be enough. But it works for me. I take a trend following approach to trailing the final piece. I’ll close it on a Heikin Ashi “close” below the 10-day lowest low.

The arrows in the above picture would denote places where there was a Heikin Ashi close below the 10-day lowest low. I like the Heikin Ashi close because it’s allows for a lot more movement and time for the price to recover.

That’s it, I’ll ride this trade now until it gives me a signal to exit. Let me know if you have any questions. I’ll update this post when we get a signal to close out.

Notes and Nuances:

*1: I’ll always look at the smaller times of the new 10-day high candidates… sometimes they’ve just broken out of a very nice chart pattern on a smaller time frame with Aggression, if this happens, I’ll look to initiate a position the following day. Here’s an example:

EOSE Daily Heikin Ashi

Down to the 15min

*2. A new 10-day high after the most recent 10-day low can often occur many times in succession, for weeks and months sometimes…this is the epitome of consolidation. These kinds of consolidations usually end in a break in either direction at some point.

TSLA Daily chart for an example.

*3 Many times when a stock or future breaks out, it will be so intense and powerful that, by the time the bar closes on that time frame, I would have a non-desirable trade entry location. This is not usually such a big deal in swing trading because I’m looking to get into positions that last much longer than a few minutes or hours like a day trade. But, there are times when a 15min bar will move an entire daily ATR just by itself. To fix this, I will set ATR levels. If the stock breaks out and moves more than 1/2 of a daily 10 period ATR, I won’t wait for the bar to close. This is strictly from breakout point to 1/2 of a daily 10 ATR. I’m sure there are better ways, but this works for me. I will never take a trade though unless there is an Aggression signal showing up. I don’t care how beautiful the set up is. I want to see mass participation with traders stumbling over themselves to get into the breakout move.