Day traders don’t trade stocks — they trade emotions.
We want to ride the momentum to the upside when everyone is greedy…
And we want to be out of long positions and/or shorting a stock when everyone is fearful.
It can be tough to recognize that critical pivot point when stocks roll over from exuberant buying on the ask…
To fall off a cliff and trigger stop losses on the way down.
So today I’m going to give you three tips on how you can spot when momentum is shifting.
It could mean it’s time to lock in profits on a long trade and move on.
3 Tips to Spot the Top of a Stock Like a Pro
Day trading is all about riding wild hype and momentum — but never becoming a true believer.
It’s about learning to nail and bail your best setups, then move on.
These three tips could help you recognize when it’s time to do just that…
Lesson 1: The Heartbeat of Trading
Volume is the pulse of successful trading.
It doesn’t matter what the news says or what the mainstream media is blabbering about — without constant or increasing volume, a setup is destined to fail.
In the stock market, identifying unusual volume is crucial. I like to trade stocks that are trading more than their 60-day average.
And as a stock climbs higher on volume, you can sometimes spot the ‘blow-off top move’ where it will go straight up with a huge volume candle — then it will start to pull back.
That’s a good indication that momentum could be shifting.
On a longer time frame chart, it can look similar. When you have a big green candle with the highest volume, it can indicate the top of a move.
Look at Safety Shot, Inc. (NASDAQ: SHOT) for example…
The stock had a huge multi-day run.
On the last day or its upside move, it had the ‘blow-off top’ move with a big wick to the upside and it traded the highest volume of any other day of the run.
On the five-minute intraday chart of that last day, you can see that when the stock hit its high, it also traded the highest volume of the day.
Lesson 2: Market Vibes
The market has a vibe or an overall mood. And it’s created by the market participants…
When traders are excited and full of exuberance, greed is running rampant. People are willing to pay any price to get in a stock they want.
I think back to the Bitcoin madness back in 2017.
Everywhere I went, people were talking crypto — gas stations, airports, even in elevators. Even in my small town in rural Michigan.
That’s when you know you have a hot market or sector. And if you’re holding a position in a stock or sector that has everyone’s attention, you probably feel pretty comfortable holding it.
But you have to keep your finger on the pulse of the market…
Because when that hype starts to fade, that’s your red flag. You’ve got to pay attention to the shifts in the market vibe and be ready to adapt.
Don’t get caught up thinking a stock or the market can go up forever.
Lesson 3: Decoding Price Action
Time to decode the market’s language — price action.
When it comes to charts, I want you to focus on three time frames: the one-year daily chart, the 15-day 15-minute chart, and the two-day five-minute chart.
If a stock can’t keep up with higher highs and higher lows across these charts, it’s telling you a story.
Learn to see and hear what the market is telling you.
If a stock is struggling at a key level multiple times, it will probably continue to struggle there. A failed breakout is a warning sign, my friends.
And if a stock starts making lower highs and lower lows, don’t tell yourself it will bounce back.
Ride the hype, understand volume, have a finger on the pulse of the market, analyze price action, and know when to bail.
That’s it for my three tips on how to spot the top of a stock move.
Recognizing these warning signs will get easier with experience.
While you’re still learning, get the advantage of expert traders on your side…
🔥 Join Pre-Market Prep with me every morning to go over hot stocks and trade ideas.
🔥 Get my number one watch emailed to you every morning and get my top afternoon watch delivered to you in my live webinar at noon.
🔥 Access our Oracle algorithm to get a watchlist every morning including key levels to trade off.
Have a great day everyone. See you back here tomorrow.
Lead Trainer, StocksToTrade