The market seems to be all over the place…
First, low-float biotechs were hot, then it switched to weed stocks, and the whole time, swing trades have also been working.
So what should you focus on?
It doesn’t matter which sector or strategy you trade, as long as you focus on trading the right patterns…
Patterns can show up in all kinds of stocks because they’re based on human emotion.
So if you know what to look for you can take advantage of any hot sector, day-one spiker, or swing trade idea.
Here are the three patterns I like in this market…
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Three Patterns to Look For In This Market
We’ve seen these patterns play out in trashy low float, multi-day runners, and swing trade ideas in the last month…
The Dip and Rip Pattern
Let’s start with one of the best patterns I love as a day trader, especially early in the day.
It’s called the dip and rip.
This pattern involves waiting for a stock to dip after spiking to a new high of the day in pre-market trading. The key is to wait for a reclaim of that high of the day (HOD) after the market opens — that’s your entry point.
Here’s how it works:
- A stock spikes to a new HOD during pre-market hours.
- After the market opens, the stock experiences a significant dip.
- Wait for the stock to reclaim the HOD with a strong upward move.
- Buy the stock at the HOD breakout point.
- Set your stop loss at VWAP or the low of the day at the time of your entry.
Managing Risk and Reward
The beauty of this pattern is that it allows you to manage risk effectively…
You can risk a small amount and adjust your position size accordingly. It offers a clear risk-to-reward ratio.
Look at this dip and rip in NeuBase Therapeutics, Inc. (NASDAQ: NBSE) on September 6 when biotech stocks were running.
NBSE chart: 1-day, 1-minute candle — courtesy of StocksToTrade.com
The Late-Day Pattern
Another pattern worth looking for in this market is the late-day setup. It’s ideal for both newer and experienced traders.
Here’s how it works:
- Look for a stock that spiked earlier in the day, typically around 11:30 a.m. EST.
- Watch for the stock to consolidate around VWAP (Volume-Weighted Average Price).
- At around 2 PM, if the stock makes a new high of the day on high volume, that’s your entry signal.
- Place your stop loss just below VWAP to manage risk.
Why It’s Effective
This pattern offers a clearly defined entry and risk level making it suitable for traders looking for consistent setups.
When a stock breaks the HOD in the afternoon, all the short sellers who have been building positions all day waiting for the stock to fade, get smoked.
Here’s an example of a VWAP hold high of day break playing out in CXApp Inc. (NASDAQ: CXAI) on September 5. You can see it broke the morning high right around 2 p.m. Eastern and never broke back below VWAP.
CXAI chart: 1-day, 1-minute candle — courtesy of StocksToTrade.com
The Weak Open Red to Green Pattern
If you’re interested in both swing and momentum trading, the weak open red-to-green pattern is a valuable tool to have in your trading toolkit.
How to identify the pattern:
- Look for a stock that experienced a significant gain the previous day.
- On the next trading day, watch for the stock to open below the previous day’s closing price, making it “red” for the day.
- When the stock turns “green” by going above the previous day’s close, that’s your entry point.
- Place your stop loss just below the red-to-green line.
Key Advantage
This pattern helps you identify stocks that are showing strength for a second consecutive day.
By entering when the stock goes green on the day, you are attempting to join the upside momentum as short sellers buy to cover and more momentum buyers come in.
Look at this pattern in action in Axcella Health Inc. (NASDAQ: AXLA) yesterday…
When the stock crossed the previous day’s close at $0.716, it went green and had a big momentum push to the upside making a high of $1.43 for a 99% move!
Shorts got squeezed and it was a beautiful breakout on the daily chart.
AXLA chart: 1-day, 1-minute candle — courtesy of StocksToTrade.com
These three trading patterns — the dip and rip, the late-day setup, and the weak open red to green — provide clear entry and exit points, making them suitable for traders seeking the best patterns.
But remember, the key to successful trading is not just finding the right patterns, but also having the right tools, plans, and managing risk.
Do you have all the puzzle pieces to put together winning trades?
If you’ve been missing out on opportunities or taking loss after loss due to the wrong plans — attend a training session with me or one of my team members.
We’ll cover the hottest stocks of the day, the patterns to trade, and review why certain trade plans worked.
You can learn from us in these training sessions at no cost!
All you have to do is sign up here and we’ll alert you when we go live!
See you there.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade