Commit this phrase to memory:
"Stocks tend to go back to previous levels of support and resistance."
The only thing that you need to be looking at as a day trader is price.
We don't care about anything else.
And one of the best things to look for is when a stock holds a certain level of support or resistance.
Once you identify this, you'll want to note it, and draw your red lines on it for a chance to give yourself a second buying or shorting opportunity later in the day.
Some things are best shown rather than said though, so take a look at the chart below on APLD...
Look at what happened in the premarket. The stock double-bottomed at $4.35 levels and didn't want to sell off.
In fact, it bounced off that moment to new premarket highs only to sell off again at the opening bell.
The trade of course though wasn't over there.
Later in the day, at 10:15 am, the stock again hit the exact same levels of support at $4.35.
Say it again with me "Stocks tend to go back to previous levels of support and resistance."
APLD hit $4.35 three times during this morning's trading session.
And if you think that's a coincidence, you're sadly mistaken.
Algorithms and market makers are looking at those previous levels of support from the premarket and are using them to get into new trades.
They see programs just like we do, and had you bought it at that second entry - let's say $4.40 - you would have been risking a nickel.
If it rolled over on you at that point, having a small loss is fine as long as your risk-reward ratio is in your favor.
In this case, you could have risked five cents to make over a dollar as APLD ripped all the way to $5.50 (another whole number, which is not a coincidence).
100 shares of APLD on that move means you were risking $5.00 to make $100.
Not all trades are going to end up as good as that one. But the more you put on, the more likely you are to profit and get a trade that completely engulfs your losses.
GSIT was yesterday's winner, APLD was one of today's.
Don't be on the sidelines missing out on these opportunities.
Get involved, and get trading.
And as always, I'll be answering the questions you send soon in just like I did last Friday.
So feel free to shoot me your trading questions to [email protected] and I'll be sure to address them in our next Q&A.
I'll see you all tomorrow morning!
The post Knowledge Bomb: Stocks Go Back to Previous Levels of Support appeared first on This Is VWAP.
About the Author