No pattern ever plays out exactly the same way twice.
That’s because there are too many variables in stocks and the traders trade them…
How many shares are being traded, the news catalyst and the stock’s float are a few things that can affect the way a stock moves at any time…
But when it comes to repeating patterns, they should have the same few steps that lead to the big move and the entry you’re looking for.
It might sound a bit complicated, but it’s not as complicated as it sounds. So let me show you four easy-to-follow steps that can help you identify one of my favorite morning patterns.
And I’ll even show you what they look like with a chart example…
Mastering the Dip and Rip Pattern: A 4-Step Guide
The dip and rip pattern might look a little different every time it plays out … After all, no two stocks are the same, with the same volume, and news, so they won’t ever look identical…
But there are four distinct parts of the dip and rip pattern that are present every time the pattern plays out.
So today I’m giving you step-by-step instructions on what to look for on a chart to help you spot a dip and rip.
Step 1: Look for a Big Premarket Gainer
First things first, we need to find the right stock to trade.
Start your day by looking for stocks that are making big moves in the premarket. These can’t just be any old stock that’s spiking…
These stocks should meet some important criteria:
- Low Float: This means there aren’t too many shares available for trading, which can lead to explosive price moves.
- News Catalyst: There should be some exciting news about the stock. Maybe it’s a new product launch, a partnership, or impressive earnings.
- Former Runner: If the stock has a history of making big moves in the past, that’s a good sign that it could potentially run again.
- High Volume: You want to see a lot of trading activity, especially in the premarket.
When you find a stock that checks the boxes and is running in premarket on a press release and high volume, you might’ve found a potential dip and rip candidate.
Step 2: Watch for a Pullback at the Market Open
Once you’ve identified a promising stock, keep a close eye on it as the market opens.
Ideally, the stock should pull back or “dip” at the open.
Why do we want this to happen? We want it to lure in short sellers who think the stock is going to crash.
But since not every dip and rip looks the same, the stock might have its dip in the premarket. Or it might not have a significant dip…
It could just consolidate along VWAP below the premarket high and that can still be enough to load it with shorts if it consolidates long enough…
Step 3: Watch for the Stock to Stay Below the Premarket High Until 9:45
After the initial dip or consolidation, you’ll want to watch the stock’s behavior.
It should stay below its premarket high until around 9:45 a.m. This is important because it gives short sellers more time to build their positions. That can make the potential spike even bigger if the stock rips.
If you’re new to trading, it’s a good idea to wait until after 9:45 a.m. to enter your trade.
This way, you avoid the choppy morning action that can be frustrating and might stop you out of your position early.
Step 4: Watch for a Break Above the Premarket High
Now, here comes the exciting part. If the stock has been behaving as expected, trading high volume while staying below the premarket high without giving back the entire move — it’s time to watch for a breakthrough.
This is where the stock rips above that premarket high and you take an entry to ride it higher.
And that’s it!
Those are the four simple steps to recognize a dip and rip pattern. It’s all about finding the right stock, waiting for the dip, and then riding the wave as it rips higher.
Here’s what the four steps look like on a chart…
VCI Global Limited (NASDAQ: VCIG) was my number one watch for a dip and rip yesterday…
VCIG chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
But always remember, trading is about making informed decisions, and there are no guarantees in the market.
So before you take an entry, make sure you have a plan in place…
Know where your risk level is if the stock goes against you. This can be the VWAP level, the daily low, or a low formed during consolidation.
Once you know how much you’re willing to risk, you can plan your goal for the trade based on 2 to 1 or 3 to 1 risk to reward or better.
Practice, learn, and don’t be discouraged by losses. Every trade is a learning opportunity whether it’s a win or a loss.
Learn More
If you’re struggling to recognize patterns and entries for yourself — let the StocksToTrade team help you for no cost!
That’s right, we’re here for you every day giving you tips, tricks, and tools you can use to help you reach your trading goals.
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See you there!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade