Education
PLR (Path of Least Resistance) Strategy Explanation - $SHOP
Hi guys this is a follow up to a post I have just published about my trading idea on shorting $NYSE:SHOP ,
It really doesn't matter if you want to short the market or long the market as it works either way, but for the sake of the example I'll take a 6 months period from the Shopify chart following earnings to better explain you my strategy...
This right here is the $NYSE:SHOP chart from approx. Jan/2024 to end of Aug/2024,
2 Earnings have been announced, both having great positive surprises, but regardless of the positive surprise (typically bullish indicator), the stock fell of 45%+.
Let's add the earnings dates to the chart so that you can better visualize them:
What you care about in this image is the earnings dates lined out, as you can see the surprise was positive yet both fell more than 10% in just a day, that I will take as the upcoming trend for at least the time being, till the next earning is announced (so, if for example the 13/Feb earning ended up being bearish, my overview on the market till at least the next earning on 8/May, will be bearish, so all of the trades I will take will be shorts).
Now I will line out the trend and the BoSs (breaks of structure) just to better visualize the trend:
As you can see the Earning date candles signed the beginning of a down trend twice, pre-announced by the Earning candle itself.
The entry strategy is now simple, the idea behind it is to "follow the path of least resistance".. by that I mean that, if your bias is bullish, who enter on candles that are of the opposite direction to the one you are heading to? - Sure you might say that it is to get better entries as ofc, on a short bias, higher sale points = better profits, but the goal here is not maximizing profits, but raising the odds exponentially so that you can take surer trades.
I've tested this strategy from Feb/2021 and so far the win rate is 95.6% (123 out of 136 trades profited .
The way the entries are spread is this:
Basically every time a bearish candle - that closes lower than the previous bearish candle did - is created, a short position of 1% of total equity is generated.
The period begins from the beginning of the current earnings season, and closes the day before the next earnings season as it works within a 3 months frame.
Each entry HAS to be the lowest bearish candle of the period, example:
Only these candles marked in blue count as entries for short positions as their close is lower of more than 0.5% than the previous one,
The pink ones are higher than the lowest up to that point, so they do not count as entries as they are technically part of a pullback that is moving in the opposite direction where you are heading.
So, going back to the entries, we enter on the close of the lowest bearish candle close up to that point.
For safety, we trail the stop loss to the previous high, this is where well defined trend lines come handy:
The thick black line is the trend line, and as new lows are broken, I mark those as BoS (break of structure) and until a new one is created, the SL will go to the previous high, and so it goes.
(viceversa for buys).
We then proceed to target the FVGs left behind by previous quarters:
As you can see there are massive gaps in the chart that we will target and identify as FVGs (Fair Value Gaps) and set the TP at the close (lowest point) of the fair value gap.
Now comes in your exit strategy...
There really are 3 ways that you can tackle this:
1- You set up TP to the lowest FVG of the series (if there are multiple like in this case)
2- You set up TP to the first FVG still open during the quarter following the Earnings Period
3- You tackle both TPs and take each FVG as a partial close to the position (example: if there are 2 FVGs you take out 50% of the position on the first and 50% on the last).
But what to do if your positions didn't reach TP (FVG close) before the next Earning or there is no FVG to begin with???
- In the case the TP you have marked out at the close of the FVG didn't reach, you'll proceed to close the position 1 day before the next Earnings is coming, unless your conviction that the FVG will fill in is so high, then you can let those run at your own risk:
- In the case in which a FVG is not present then you'll target the previous High (in case of a buy) or Low (in case of a sell) as your TP, utilize the previous low (in case of buy) or previous high (in case of sell) as SL and just let it run:
as you can see the 4 trades were all profitable, made little money but sure money in just 15 days
Unless I forget anything, this right here, is my strategy.
Simple, straight forward, high success rate and doesn't leave anything up to the case.
If you have any questions PLEASE leave a comment below and I'll do my best to reply in time ;)
It really doesn't matter if you want to short the market or long the market as it works either way, but for the sake of the example I'll take a 6 months period from the Shopify chart following earnings to better explain you my strategy...
This right here is the $NYSE:SHOP chart from approx. Jan/2024 to end of Aug/2024,
2 Earnings have been announced, both having great positive surprises, but regardless of the positive surprise (typically bullish indicator), the stock fell of 45%+.
Let's add the earnings dates to the chart so that you can better visualize them:
What you care about in this image is the earnings dates lined out, as you can see the surprise was positive yet both fell more than 10% in just a day, that I will take as the upcoming trend for at least the time being, till the next earning is announced (so, if for example the 13/Feb earning ended up being bearish, my overview on the market till at least the next earning on 8/May, will be bearish, so all of the trades I will take will be shorts).
Now I will line out the trend and the BoSs (breaks of structure) just to better visualize the trend:
As you can see the Earning date candles signed the beginning of a down trend twice, pre-announced by the Earning candle itself.
The entry strategy is now simple, the idea behind it is to "follow the path of least resistance".. by that I mean that, if your bias is bullish, who enter on candles that are of the opposite direction to the one you are heading to? - Sure you might say that it is to get better entries as ofc, on a short bias, higher sale points = better profits, but the goal here is not maximizing profits, but raising the odds exponentially so that you can take surer trades.
I've tested this strategy from Feb/2021 and so far the win rate is 95.6% (123 out of 136 trades profited .
The way the entries are spread is this:
Basically every time a bearish candle - that closes lower than the previous bearish candle did - is created, a short position of 1% of total equity is generated.
The period begins from the beginning of the current earnings season, and closes the day before the next earnings season as it works within a 3 months frame.
Each entry HAS to be the lowest bearish candle of the period, example:
Only these candles marked in blue count as entries for short positions as their close is lower of more than 0.5% than the previous one,
The pink ones are higher than the lowest up to that point, so they do not count as entries as they are technically part of a pullback that is moving in the opposite direction where you are heading.
So, going back to the entries, we enter on the close of the lowest bearish candle close up to that point.
For safety, we trail the stop loss to the previous high, this is where well defined trend lines come handy:
The thick black line is the trend line, and as new lows are broken, I mark those as BoS (break of structure) and until a new one is created, the SL will go to the previous high, and so it goes.
(viceversa for buys).
We then proceed to target the FVGs left behind by previous quarters:
As you can see there are massive gaps in the chart that we will target and identify as FVGs (Fair Value Gaps) and set the TP at the close (lowest point) of the fair value gap.
Now comes in your exit strategy...
There really are 3 ways that you can tackle this:
1- You set up TP to the lowest FVG of the series (if there are multiple like in this case)
2- You set up TP to the first FVG still open during the quarter following the Earnings Period
3- You tackle both TPs and take each FVG as a partial close to the position (example: if there are 2 FVGs you take out 50% of the position on the first and 50% on the last).
But what to do if your positions didn't reach TP (FVG close) before the next Earning or there is no FVG to begin with???
- In the case the TP you have marked out at the close of the FVG didn't reach, you'll proceed to close the position 1 day before the next Earnings is coming, unless your conviction that the FVG will fill in is so high, then you can let those run at your own risk:
- In the case in which a FVG is not present then you'll target the previous High (in case of a buy) or Low (in case of a sell) as your TP, utilize the previous low (in case of buy) or previous high (in case of sell) as SL and just let it run:
as you can see the 4 trades were all profitable, made little money but sure money in just 15 days
Unless I forget anything, this right here, is my strategy.
Simple, straight forward, high success rate and doesn't leave anything up to the case.
If you have any questions PLEASE leave a comment below and I'll do my best to reply in time ;)
Note
Here is an example of a full year trading using this strategy on $NYSE:SHOP:Both buys and sells, down are the specs:
- Number of trades = 53
- Successful trades = 100% (53/53)
- Profit = $10.593 (10.59%)
calculated over a $100k account, percentage remains the same ;)
Note
The idea to develop this strategy came to me on 25/Jan/2025 after reading page 110 of "Reminiscences of a Stock Operator" by Edwin Lefèvre, book published in 1923 but still EXTREMELY ACTUAL.Ofc i adapted my own view and strategy etc.. but that's what sparked the idea.
I suggest you to read it ;)
Note
Full 1d $NYSE:SHOP trading results (entries on 1d candles)
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.