We nailed another premarket spiker in my morning webinar yesterday…
Apollomics, Inc. (NASDAQ: APLM) had a 13% move from the premarket setup I said to watch for.
I’ve written about that setup in the last few Daily Accelerator issues…
But after the open, APLM dropped like a rock and never looked back.
This time it wasn’t just because it was a chat pump…
It was another phenomenon that happens in the market…
This is why I prefer to buy breakouts and strength than try to dip buy stocks.
It all depends on your personality and trading style. But here’s what I think happened — see if it makes sense to you…
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Why I Buy Strength Instead of Weakness
If you’ve been following me for a while, you know I love to buy strength — when a stock breaks above key levels.
I like to ride the momentum of short squeezes when short sellers get proven wrong as a stock keeps climbing.
What causes that straight-up price action is short sellers guessing tops…
As a stock climbs higher, they keep adding to their losing position and eventually have to buy to cover.
They might even re-enter and try to short again…
And this can happen over and over again as the price climbs higher until all the stubborn shorts are eventually blown out of their positions.
Now picture that kind of price action in reverse.
That’s what I think happens when too many dip buyers enter a stock…
Dip buyers try to guess the bottom. Then they add to a losing position because they have no trading plan. Then maybe they sell and try to rebuy or they just baghold for months — and the cycle continues.
Until every single dip buyer gives up.
APLM chart: 1-year, daily candle — courtesy of StocksToTrade.com
That’s why guessing bottoms is just as bad as guessing tops.
But just like I’m not against short selling, I’m not against dip buying…
I’m against dip-buying crappy scam biotech chat pumps.
Dip-buying real companies and stocks with real news is a different story.
If you want to dip buy an earnings winner at support or another key level, I’m okay with that.
But APLM’s news was a joke, the company is a joke, and it was a chat pump.
Knowing when to dip buy and not to dip buy is a skill you will learn over time. And dip buying might become a strategy you like to use…
It all depends on your personality and trading style.
I prefer to take advantage of big upside moves when short sellers join momentum buyers on huge upside moves.
And that’s what I teach traders to do in my live webinars.
See how you can join me in Pre-Market Prep every morning by attending one of our training sessions.
They’re completely free — just sign up here to get in!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade