As a new trader, it’s tough to know when a pattern is going to work and when it won’t…
Because even though certain patterns can repeat, it doesn’t mean they’ll look exactly the same each time.
Every breakout, dip and rip, and VWAP hold high of the day break pattern will look a little different than the last one.
Each one will offer a different risk to reward and each one will have a different range and volatility depending on the float, volume, and the stock’s previous history…
And sometimes a pattern doesn’t play out when you think it will.
You give up on the play and then see it worked the next day…
That’s what happened yesterday when one of my patterns played at an unexpected time.
So let’s break down this beautiful pattern from yesterday and the reasons behind it…
The Day Three Surge On Day Four?
Nano-X Imaging Ltd. (NASDAQ: NNOX) first spiked on May 1 after the company filed its annual report and announced its imaging system received FDA clearance.
That was the day one move.
And the high of day one is the level we want to watch a few days later for the day three surge pattern to play out…
Before that level breaks, we want to see consolidation action. Where a stock churns sideways in a channel…
Shorts are entering at the top of the channel, and buyers are coming in at the bottom of the channel.
NNOX chart: 3-day, 5-minute candle — courtesy of StocksToTrade.com
When a stock is trading in a channel eventually it will break to the upside or the downside…
Shorts are betting it will go down. And buyers, or shorts buying to cover at the bottom of the channel, think it’s going to go higher.
I don’t like guessing games. So I wait for confirmation…
That’s why I like to wait for the stock to break above the high of day one and consolidation, to indicate there’s more potential upside momentum as shorts buy to cover and more breakout buyers come in.
That’s when you can get these big spikes…
NNOX chart: 5-day, 5-minute candle — courtesy of StocksToTrade.com
But you can see the move happened on day four instead of day three as the pattern’s name implies…
So you might have given up on NNOX on Wednesday thinking it wasn’t going to make the move.
That’s why it’s important to be flexible with your trade plans and expectations.
You have to focus on each individual stock chart and the price action, then be flexible if the move doesn’t come when you expect it to.
NNOX didn’t break to the upside on day three, but it didn’t break below the channel either.
So as long as the chart is intact, it should stay on your watchlist. Because as you can see, once the stock broke the day one high of $11.68, it spiked almost straight up to $14.83. (Not surprisingly, right near the Oracle resistance level.)
Another simple way to keep track of plays like this is to use alerts. You can set one near the top of the channel and wait for it to alert you to a potential trade.
The day three surge pattern isn’t in my ebook, so watch this to learn more.
Also, check out this video.
Keep up with my concepts and lessons with my three weekly Market Update videos when you subscribe here.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade