My expectations could not have been lower coming into February, but I guess having that preconception shattered is the best thing that could have happened.
As it turns out, February is quickly becoming one of the strongest months I’ve ever had. If it keeps up delivering a +$8,000 days, I’m set to reach $100,000 on the month. And, if that happens, I’ll finally be over the one million dollar mark from where I first started with just $583 almost exactly two years ago today.
That’s pretty wild to think about, but it proves how effective maintaining a consistent trading strategy can be. With that in mind, I want to delve into one of the most critical aspects of my trading strategy, the charting patterns I look for in the stocks I’m going to trade as well as the entry points I use to maximize my upside potential and minimize my downside risk.
Scanning For Highs
The two main ways I use to brief myself on appealing trading opportunities are my scanners for premarket movers and stock pushing multiple highs that day. While there are different opportunities and considerations that go into in each, the main thing I’m looking are stocks hitting new recent highs, generally above 30 percent.
While this ideally helps me locate stocks trading at higher relative volume, it also provides the basis for several trading patterns that can be exploited. Those initial highs act as a starting point and, if the stock has other promising characteristics like a price of entry below $10 and high enough float, I start looking at how the trading action is moving price.
Pullbacks And Breakouts
In the case of a stock moving higher in premarket, I pinpoint the high of the move as key level to break once trading begins. As soon as it breaks that level, I look for a pullback as my entry.
I determine that entry by looking at the high of the move and subsequent five-second candles, plotting a trend line along where each candle tops out. This helps illustrate bullish patterns like the flag or pennant, where a stock breaking out consolidates before moving higher. The ideal entry, known as a breakout candle, is the point at which the price opens above the previous candle’s open.
You can see this strategy at work in most of my market recaps, but this example from my trade in SCWorx Corp. (NASDAQ: WORX) shows how predictable this pattern can be on a stock with a lot of early momentum.
High-Of-Day And Buying Into Momentum
For stocks that hit my high-of-day momentum scanner, speed is everything. While I also use the pullback strategy for stocks spiking in the regular session, I generally look to find a position as quickly as possible if I catch a stock in the midst of a break out.
The strategy in this approach comes in on how you manage your risk. I always place stops below my initial entry so that I’m generally not risking more than $1,000. If the stock continues higher, I’ll buy more and take my original position off the table. This helps add cushion to the trade and allows my to be more aggressive while reducing my risk to almost nothing.
You can get a glimpse of how this setup works in my trade in SPI Energy Co., Ltd. (NYSE: SPI) from Monday.
I want to stress that this strategy is very dependent on the market you’re in. If you’ve seen other stocks breakout and continue higher, this strategy can be extremely profitable. However, there’s often less technical support buying into a breakout, which means you could end up paying more than you wanted to for you shares or even buying at the top if volume peters out and the chart breaks down. Using limit orders can help mitigate this risk, but that might also mean you don’t get filled.
These strategies take time and patience to master. I strongly recommend practicing them in simulated trading programs before using them in the wild. Over time, you’ll develop your own sense of which patterns and setups that are most profitable for you.
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