One of Jack Kellogg's main indicators is the volume weighted average price (VWAP).
This shows the average price paid for stocks and helps gauge sentiment.
He noted that he only uses indicators as a rough guide but never acts solely on them.
Jack Kellogg started trading stocks right out of high school in 2017.
After five years of professional experience, he has been exposed to various 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 in the process is: keep things 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 trading. I just use basic trendlines, support, resistance, volume, and those are all my indicators,” said Kellogg. “I think if you make the indicators too complicated it will actually affect your trading because then you are trading on the indicators more than the actual price action.”
This mindset has allowed him to become a versatile trader, taking both long and short positions when needed, which has helped him continue trading during the 2022 bear market. His tax returns, viewed by Insider, showed that he reported profits of over $8 million from day trading in 2020 and 2021. His returns gained momentum in 2020 when he posted total income of $1.6 million . In 2021, that amount increased to a total income of $6.5 million.
Kellogg has come a long way since he started with $7,500, which he originally deposited when he started trading. His road to success was not a straight one. When he first tried trading, he was down a few hundred dollars. This made him realize that he didn't know what he was doing.
His next steps therefore included giving up real trading and testing his skills through paper trading. Then he signed up for an online course that his parents helped fund. The program, created by Timothy Sykes, a trading teacher and former penny stock trader known for being able to turn his bar mitzvah gifts into over $1 million in profits, helped him to develop the skills and patience that he then used to develop his skills.
When the stock market staged a powerful rebound in 2020, it was poised to ride the bullish wave. In 2022, as the market slowed, he continued to make gains betting on popular stocks like Bed Bath and Beyond (BBBY) and AMC (AMC), the latter of which netted him $60,000, according to a screenshot of his e-trade brokerage account. He also traded some small-cap stocks and made big profits on single trades like Intelligent Living Application Group Inc. (ILAG), which netted him over $91,000, according to screenshots of his Guardian account.
His top 4 indicators
The first indicator he uses as a sentiment guide is the volume weighted average price (VWAP), which shows the average price paid for stocks throughout trading, 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 keeps him from being a “chaser,” a term popularly used for those who enter a position too late or after a stock starts to rise.
When 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 open a position if the price is above the VWAP line. The opposite is true when he's shorting a stock: If the price is below the VWAP, he generally won't short the stock.
He also often uses this indicator to determine when to exit his position, as this point can sometimes indicate at which point a stock's price will start falling. The same is also true in reverse: sometimes he uses the VWAP to determine the price point at which to cover his position. So if he shorts a stock at $9 and the VWAP is $7.50, he will use that price as a starting point to lock in profits.
For example, on January 5th, he took a short position on ticker symbol AMTD at $2.50. The midline of the VWAP was around $2.22. So Kellogg covered his position at $2.25 and made a 10% gain.
The next indicator is linear regressionThis indicates the direction the price is moving and when it may change direction. There are three lines superimposed on the candlesticks. The lower and upper lines are the areas of price action or volatility, while the middle line shows the average between the two. Price action above the upper line signals an overbought stock and below the lower line signals an oversold stock.
“So the better a stock respects the lines of the channel it creates, the more predictable the stock will be, I think,” Kellogg said. This gives him a better sense that the stock price will move in line with his thesis.
The next indicator is the volume This shows the number of shares being traded at any point in time. Kellogg uses volume primarily as a potential indicator that a stock may be about to reverse its trend.
“When I see big volumes happening, I know there may be a lot of people on the wrong side. So if there's a big spike in volume near the daily high, it's possible that a lot of people are buying the stock, and a lot of people are on the hunt,” Kellogg said.
After all, he keeps an eye on it support and resistance lines, In the former, the price tends to hold up, in the latter, it tends to sell off. Levels change throughout the day. Kellogg tries to find the key levels by looking for a parallel increase in loudness in those areas. He also looks at how often and how long a price level lasts to determine how strong that point is. While it's not an exact science, general areas where the price fluctuates for 30 minutes to an hour are the strongest, he said.
“Ultimately, if the stock goes down, there will be a bouncing ball-type price action,” Kellogg said. “So you see it jumping from $7 to $8, then again from $7.30 to $7.50, and then from $7.40 to $7.10, then from $7.20 and finally the Breaking support below $7. And then the question is will it make it to a resistance level at $7 and continue lower?”
Ultimately, price action is what matters, Kellogg noted. Even if you have a thesis as to why a stock's price may move in a certain direction, you need to limit losses when the price moves in a different direction.
“I never base my entire decision on just one indicator. So if an indicator doesn't match the trading thesis, I'll just cut my losses,” Kellogg said. “So I've never blamed any indicator for my losses because I don't let it get to that point. If the price action keeps going down I will cut my losses, or if the price action keeps going up I will cover my short positioning.
Everyone has access and can see the same data — it really depends on what you do with that data, he said. Most traders struggle with the psychology of trading. You can have the best strategy and indicators, but if you don't have the discipline to stick to it, you'll find yourself in a bad situation all the time. Most people don't try hard enough to control their emotions, he said.
Read the original article on Business Insider