Repetition is a crucial component of learning to trade…
You need to be able to recognize what makes a good trade and setup.
And a lot of what we look for every day doesn’t change.
We’re always looking for box checkers and big percent gainers.
And I review the setups that work over and over again so that you can drill into your brain what a good setup and trade looks like.
But today I’m doing something different…
I’m giving you a forward look at a stock that’s setting up to be a good trade.
Will it work? Nothing is guaranteed in trading…
But you have to learn how to recognize these setups in advance if you ever want to catch a big move.
So let’s dive into what I see out there this morning…
How to Spot a Setup In Advance of a Move
We look at big percent gainers every morning for potential dip and rips and afternoon VWAP holds.
But one of the best ways to find good potential setups is to look back at recent runners.
If stocks are holding up, they can offer more than one opportunity to trade it on day one. You can often trade the same multi-day runner over and over again.
It’s one of the reasons I think new traders should focus on multi-day runners.
I keep recent runners on my radar using my rolling watchlist methodology.
Learn about the watchlist methodology new traders should use here.
And I’ve spotted a big gainer that’s hanging around for a potential move today…
Nkarta, Inc. (NASDAQ: NKTX) was a big midday mover on Tuesday after the company pumped out two press releases.
The first one announced that the company received FDA clearance for its IND application.
The second press release announced a partnership to evaluate its drug’s potential.
StocksToTrade’s Breaking News Chat alerted the news before the stock surged 125%!
The stock closed near its highs that day.
Once a stock has a big percent gain with a catalyst…
And it closes near its highs … It should be on your radar the next day.
But yesterday it didn’t do anything exciting. It chopped sideways…
That’s exactly the kind of action we look for in one of our patterns — the day three surge.
Also, the 11-day surge is coming — get ready for it here!
The day three surge is simple to spot on a chart … It starts with a stock that has a big gain on day one and then chops sideways holding its gains.
Then on day three (or sometimes day four or five if the stock continues to go sideways), we look for the stock to break the day one high and squeeze higher.
NKTX chart: 2-day, 5-minute candle — courtesy of StocksToTrade.com
But the pattern doesn’t have to play out perfectly or exactly the same every time…
NKTX’s day one high was $3.95. And that’s pretty high from where it closed yesterday.
So if trading is going well for you and you want to be aggressive, you could enter a little earlier, like at a break of $3.50.
That’s where the stock would be above the channel it’s trading in. Plus, it’s a key psychological level and a half-dollar level.
It’s also where the majority of short sellers who shorted yesterday would be underwater. And that could lead to a massive short squeeze.
But with any entry, you want to see volume come in to add confirmation to your thesis.
These are the kinds of potential trades I look for every day.
If you want to follow along with what I see in the markets — join StocksToTrade Advisory.
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Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade