This is my personal favorite long strategy I used to grow my small trading account trading
part time while working a full time job, and these are the 3 criteria.
Don’t buy these whole dollar breakouts or high of the day breakouts, you hear me saying
that all the time. Buying the dip, buying the bounce, or longing for the morning panic,
its all just different names for the same technical trading concept. It’s one of the
oldest trading setups in the book. or DVD’s.
And that's because this strategy provides you better odds of making money from the trade,
and higher risk reward. If you have a small account and you cannot short, or you’re
trading part time while working a full time and only have time the first hour of the open,
this would be the perfect strategy for you.
As long as you follow these 3 criteria, and clicking the like button for the YouTube algorithm.
Go ahead, did you lose money getting dumped on by chat room alerts? Then destroy that
like button. Did your wife or girlfriend or boyfriend nag at you this week? Then destroy
that like button, and then call them back. Seriously I should call him back right now.
Hey mike, i know it's been six months. I just forgot to call back, I’ve just been so busy
watching makeup tutorials on YouTube. Anything new lately?
What? You went all in buying a penny stock breakout? And you didn’t set a stop loss?
I knew I shouldn thave called you back. Wait tell me which stock it was so I can short
it tomorrow.
So the first criteria I care about when I'm looking for a stock to dip buy, is the daily
chart. And not just any daily chart, I want to see a parabolic daily chart to the upside.
Let’s take a look at this example CLVS. if you look at the daily chart, the stock
was going straight up from mid November all the way to the beginning of December. That's
two weeks straight. With a few red days down here, but near the end it was green for 7
days straight.
This kind of chart set up, or “pattern” if you really want to call it that, is what
we call parabolic. In a chart set up like these, it means there is a lot of emotional
and greedy buying from the buyers, big funds and investors are just pouring their money
straight into CLVS, after the company announced good earnings and guidance in the beginning
of November.
So know the good news, and seeing the nice daily breakouts are great, but you do not
want to buying breakouts like that guy Mike I called earlier. His name is now changed
to bagholder Mike on my phone. Done.
Don’t buy breakouts, especially not on low float penny stocks recently like we’ve seen
on SNCA, CETX and CPAH. Too many times these breakouts turn into fake outs. These low float
sometimes will pop for like 10 cents and immediately dump 30,50 cents.
Yes you definitely could make money buying breakouts. But the risk reward most times
is terrible. To me thats not a consistent strategy, especially when you’re trying
to build your small trading account.
I prefer to buy the dips at support level on stocks with a strong parabolic daily chart
like CLVS. Now you must be wondering, okay, how exactly do we find these strong support
levels to buy the bounce.
And that brings us to the second criteria, which is to click the like button at the bottom
of this video. And please be gentle with that like button, i appreciate the support guys,
but please don’t break your phone.
The second criter to this buy the dip strategy, is to draw support levels from the daily chart.
You can’t just buy any support levels, the strongest support, are almost always going
to be from the daily chart.
So using our parabolic daily chart example CLVS, you can see there's support level on
the daily around this 11.60’s area. That's a support line from end of october 2018, and
this support was broken down later on in July 2019. So when a support line is broken, it
becomes later resistance.
Which is why on this day, thats the top for CLVS. the stock hit that daily resistance
intraday and sold off. Now what if we want to wait for the stock to breakout more the
next day and buy the dip after the breakout has confirmed?
You can see CLVS broke previous days high at 11.6 early in the morning and ran to a
high of 12.65. when a resistance level is reclaimed, that then becomes support. After
it reached the highs the stock pulled back And dipped to this 11.67 level. That's the
dip area we were looking at on the daily chart.
Yes I know it missed by 7 cents, but these daily support and resistance levels are never
going to be exact to the cent. They are indications of a rough area of supply and demand. And
if you were waiting for that dip to long, you would then put the stop under the breakdown
of support level. Make sure to give it some room like 10 or 15 cents depending on the
float and volatility. If you put stops right at entry or too close to support level, you’ll
always get stopped out.
And you can see the same 11.60s level acted as bounce levels on the daily for the next
few red days as well. Heres another key resistance level on the daily right here around 9.6.
You can see that area marked the top for 4 days straight in august of 2019.
Onc That 11.60s level is broke, on Nov 25, that daily resistance level becomes strong
intraday support on this day mid day, and the next morning early on around 10am. Which
would be the area for that morning panic bounce set up. If you only have the first1 or 2 hours
to trade before going to work, this is a great way to buy the bounce.
But of course its only going to work if you were patient, had the support lines drawn
out from the daily chart, and you waited for the set up to come to you. There will be days
where you miss a morning dip buy area by like 5 or 10 cents here, or the stock will tank
a bit lower than you have expected. But you will grow to adjust your buy entries and allow
yourself more wiggle room once you become comfortable and familiar with the set up.
Now that we have criteria #1 parabolic daily chart, #2 daily support levels. The next criteria
is the icing on the cake. Or as we asians say it, the japanese chili spice on ramen.
Seriously though every time i see people put siracha that fake spicy sauce on ramen, I
get very offended.
I call this third criteria the amazing japanese chili spice on ramen, because it’s not required
for buying the dip on morning panic sell offs, but it's an extra factor that strengthens
the set up and make the set up on a stock even more favorable.
And that criteria is high short interest. Remember when we talked about criteria 1 for
this setup being the parabolic daily chart? A stock is going parabolic meaning that its
gone straight up for a couple of days with no major pull back.
And at the same time, whenever theres a stock thats going up up and up to the moon, there’s
always funds and people trying to short it. Because yes, technically speaking, a chart
that looks like this is extended, it should sell off right? It should probably come back
down to 8 or 9
But when a heavily shorted stock that “should” come back down to earth, but doesn’t , you
bet there are short sellers trapped and in pain for multiple days.
And thats essentially the kind of emotional pain that you as a long trader looking for
a quick morning bounce want to take advantage of. You are buying into these morning panic
know that te stock is heavily shorted. These short sellers piled on near highs the last
few days thinking that the stock will tank, and many of these shorts are probably holding
their position overnight as a swing anticipating the stock to go straight back down to single
digits.
And how exactly do you check the short %? The best way with the most updated data is on
trade ideas. I have the scanner set up to show me the short interest on the morning
gap scanners, mid day momentum scanner. And you can also see it in the stock details.
Alternatively you can check the short % details on finviz and shortsqueeze dot com. Both of
these sites are free, but i believe theres some delay. Overall it still gets the job
done.
Besides CLVS, another perfect example meeting all the criteria we talked about is RAD. Rite
aid. After the stock announced strong earnings and guidance, you can see the stock going
parabolic on the daily.
And if we draw these price level from the daily chart, you can see they show you areas
of support to dip buy for a bounce either in the morning, or intraday. Now are the price
levels going to be 100% exact? No, nothing is 100% guaranteed in day trading.
Like i mentioned in this video, the only thing that will guarantee you profit 100% of the
time, is keeping your 9-5 job. But looking at RAD, you can see the stock has a high short
interest of 27%. Usually over 20% of short interest is when I consider the stock to be
highly shorted, and even better if its over 50% like CLVS.
And the reason a high short interest will help you out so much as a long trader looking
to buy the morning bounce, is because you know that whoever is shorting heavy on these
stocks, will look to buy to cover if they are given any major sell off in the morning.
And the short sellers buying to cover, and fresh buyers coming in to buy the stock at
discounted prices, is the kind of volume that you can take advantage of for a potential
upside to retest the highs.
This buy the dip strategy, and the overnight swing strategy we talked about in the last
video, is the 2 core strategy I used to build my small account while working a full time
job. Again, the key to both of these set ups is patience, and being okay with not trading
if the set up isn’t optimal.
Because its not everyday there would be a stock meeting all three criteria for you to
dip buy, and same as the 3 criteria for the overnight swing strategy. If you haven't seen
the overnight strategy or my video on how to trade part time while working a full time
job, make sure to check those out.