Sketchy biotech companies sure know how to play the penny stock game…
They see a bunch of other biotech stocks having big gains and they want a piece of the action.
So how do they get their stock price up?
By pushing out a perfectly timed 8 a.m. press release.
It worked for one biotech stock that gained over 60% yesterday…
And news is one thing I said I wanted to see in this sector to create more big runners that can potentially hold their gains.
But news isn’t the only reason you need to jump into a trade in any stock…
You need to check the boxes and make solid trading plans. That includes getting good entries and managing your exits for the right risk to reward.
So here’s a step-by-step guide on how you could’ve built a trading plan in yesterday’s big runner…
The stock had over a 27% move in the first hour and a half of the trading day!
Use these lessons the next time you plan a trade, they can help you refine your process over time…
Building a Trading Plan Step-By-Step
VYNE Therapeutics Inc. (NASDAQ: VYNE) is a biotech company that announced positive preclinical data for one of its potential treatments.
So right away we know it’s in a hot sector and it has news — those are both crucial boxes we like to check before making a trading plan.
Next, we check the float…
VYNE only has 3.2 million shares in the float so it’s a low-float stock with news in a hot sector.
That’s three boxes … And it’s looking like a stock that has potential…
Now, we look back at the long-term chart.
Does it have a history of running?
VYNE chart: 6-month, daily candle — courtesy of StocksToTrade.com
It’s had a few one-day spikes but they usually fail by the end of the day. So consider that when making your trading plan…
It’s probably a stock you want to day trade only and not hold overnight (that’s a rule I have for most biotech stocks). Because the chart shows you the stock typically can’t hold its gains.
The next step in making a trading plan is to look at Oracle…
VYNE was on Oracle yesterday morning with a signal entry price of $3.96.
From there you can use the Oracle support and resistance indicator to look at the next resistance level…
Oracle showed the first resistance level on the chart was $4.34. If that level was your goal with a potential 30 cents per share to the upside, using a 3 to 1 risk reward would mean your stop would be roughly 10 cents below your entry.
And a move from $3.96 to $4.34 is an almost 10% gain.
But if you want to be more aggressive with your trade plans, you can wait for the next Oracle resistance level … For VYNE, that was at $5.10.
A move from $3.96 to $5.10 is a 27% gain…
VYNE chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
You get to choose how conservative or aggressive you want to be with your trade plans.
But just remember that you won’t catch the bottom and top of every move. And don’t stress about a few cents here and there.
The important thing to focus on is developing a solid plan and following it. Then refine it and learn what you’re good at and where you can improve.
Having to constantly learn and adapt is part of what I love about trading. It’s a challenge and you have to work to get 1% better every day.
Use StocksToTrade’s Oracle indicator to help you along the way. It’s built into every StocksToTrade subscription and you can try it here!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade