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One of Jack Kellogg’s main indicators is the volume-weighted average price (VWAP).
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This shows the average price paid for the stock and helps gauge sentiment.
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He only uses indicators as a rough guide but never trades solely on them, he noted.
Jack Kellogg started trading stocks right out of high school in 2017.
Five years into his trade, he has already been exposed to various types of market conditions, including the stock market crash of 2020, the raging bull rallies of 2021, and the bear market of 2022. One thing he has learned to through it all is to keep it simple and stay flexible.
“There’s this acronym: KISS, keep it simple, stupid. I don’t think people need super fancy indicators to make money. I just use basic trendlines, support, resistance, volume, and those are all my indicators.” said Kellogg. “I think if you complicate the indicators too much, it will actually disrupt your trading because then you are trading more on the indicators than the actual price action.”
This attitude allowed him to become an all-around trader who takes both long and short positions when appropriate, which helped him continue to trade throughout the bear market of 2022. His tax returns, seen by Insider, showed he reported more than $8 million in winnings. day trading in 2020 and 2021. His returns picked up momentum in 2020 when he had a total income of $1.6 million. In 2021, this amount grew to a total income of $6.5 million.
Kellogg has come a long way since starting out with $7,500, which he initially deposited when he started trading. His path to success was not a straight line. When he first tried to trade, he had lost a few hundred dollars. This led him to realize that he didn’t know what he was doing.
So his next moves were to turn off live trading and test his skills through paper trading. Then he signed up for an online course that his parents helped pay for. The program, which was created by Timothy Sykes, a business professor and former penny stock trader known for claiming to turn his bar mitzvah cash gift into over $1 million in winnings, has helped him develop the skills and patience which he then used to develop his skills. .
By the time the stock market began to rally strongly in 2020, it was ready to ride the bullish wave. In 2022, when the market slowed, he continued to profit by betting on popular stocks like Bed Bath and Beyond (BBBY) and AMC (AMC), the latter of which brought him $60,000, according to a screenshot of his E-Trade brokerage account. He also traded a few small-cap stocks and picked up big gains on one-time trades like Intelligent Living Application Group Inc. (ILAG) that netted him more than $91,000, according to screenshots from his Guardian account.
His 4 best indicators
The first indicator he uses as a sentiment guide is the volume-weighted average price (VWAP), which shows the average price paid for the shares across all trades adjusted for volume. He uses it on the daily chart as a guide to determine a good buy price for the stock he is trading. This prevents him from being a hunter, the term commonly used for those who enter a position too late or after an action begins to rally.
If the goal is to buy low and sell high, you don’t want to pay more than the average buyer paid, he noted. Therefore, Kellogg will not enter the position if the price is above the VWAP line. The reverse is true if he is shorting a stock: if the price is below VWAP, he will generally not short the stock.
Often, he will use this indicator to also determine when to exit his position, as this point can sometimes indicate where the price of a stock will start to fall. The same is also true in reverse: he will sometimes use the VWAP to determine the price level where he will hedge his position. Therefore, if he shorted a stock at $9 and the VWAP is at $7.50, he would use that price as the point to lock in profits.
For example, on January 5, he went short on the AMTD ticker at $2.50. The VWAP middle line was trending around $2.22. Kellogg therefore covered its position at $2.25 and made a profit of 10%.
The next indicator is linear regression, which shows the direction the price is trending and when it may change direction. These are three lines that overlap the candles. The lower and upper lines are the ranges of price movement or volatility, while the middle line shows the average between the two. Price action above the top line signals an overbought stock, and below the bottom line, an oversold stock.
“So the more a title follows the lines of the created channel, the more predictable I think the title will be,” Kellogg said. This gives him a better idea that the evolution of the share price will follow his thesis.
The next indicator is the volume which shows the number of shares traded at any time. Kellogg primarily uses volume as a potential indicator that a stock may reverse.
“Seeing a lot of volume going through, I know that potentially a lot of people are on the wrong side. So if a big spike in volume happens towards the top of the day, it’s possible that a lot of people will buy the stock and a lot of people are running after it,” Kellogg said.
Finally, he keeps an eye on support and resistance lines, the first being where the price tends to hold and the second where it tends to sell. Levels change throughout the day. Kellogg tries to find key levels by looking for a parallel increase in volume in these areas. It also pays attention to the number of times and duration of a price level to determine the strength of that point. Although it is not an exact science, the general areas where the price oscillates for 30 minutes to an hour are the strongest, he said.
“Eventually you will see bouncing ball type price action if the stock is going to go down,” Kellogg said. “So you see it bouncing from $7 to $8, then bouncing from $7.30 to $7.50, then bouncing from $7.40 to $7.10, then bouncing from $7.20 and finally breaking the support below $7. And then the question is, is it going to create a resistance level at $7 and continue lower?”
Ultimately, price action is king, Kellogg noted. Even if you have a thesis as to why the price of a stock may move in a certain direction, if the price moves differently, you need to cut losses.
“I never base my whole decision on an indicator. So if an indicator disagrees with the trading thesis, then I’ll just cut my losses,” Kellogg said. “So I have never charged any of my losses to an indicator because I don’t let it get to that point. If the price action continues to fall then I will cut my losses or if the price action continues to rise, so I’ll cover my short position.”
Everyone has access and can see the same data — it’s really about what you do with that data, he said. Where most traders struggle is with trading psychology. You can have the best strategy and the best indicators, but if you don’t have the discipline to stick with it, you will constantly find yourself in a bad spot. Most people don’t try hard enough to control their emotions, he said.
Read the original article on Business Insider