I avoided one of the worst-performing stocks of the day on Friday…
And knowing what to avoid can be as important — or even more important — than knowing what to trade.
So today I’m going to give you the things I saw that made me avoid it.
Even though it had the chart pattern I like to see in premarket…
It’s a recent runner…
And it was breaking out.
There’s more to trading than patterns. So let me break it down for you so you can avoid getting caught in one of the worst stocks of the day today.
Let’s start Money Monday off right by focusing on the best potential trades…
How to Avoid Stocks That Fail
Wearable Devices Ltd. (NASDAQ: WLDS) was going crazy in premarket on Friday…
The trappy, trashy Apple band stock was hanging around for weeks — even before they dropped a BS puffy AI press release on Friday morning — the day I love for potential short squeezes.
So it had news, it’s in a hot sector, it was Friday, and it had the premarket chart I like and it was a breakout on the daily chart…
So it looked like it was all there for a potential trade in WLDS in premarket.
It was spiking straight up and I just wanted it to slow down so I could chart some levels for a trade plan.
But it didn’t slow down in premarket. It seemed like all everyone was talking about all morning was WLDS…
But there was something I just didn’t like…
I kept looking at all the other Oracle stocks trying to find something else.
I didn’t trust it in premarket or in the morning. And I couldn’t quite put it into words.
My 15 years of experience was trying to tell me something … And this is why seat time is so important and I preach to look at charts until your eyes bleed.
WLDS chart: 10-day, 5-minute candle — courtesy of StocksToTrade.com
So let’s break down why the WLDS breakout failed…
- The shares were easy to borrow and cheap to short — that means it was easy to short sell and it opened right around that $2.50 level which is key for short sellers because of shorting rules.
- There wasn’t enough volume. Even though the stock had news, it wasn’t trading enough volume to sustain the breakout.
- It had a huge gap up. I never like to say a stock is ‘up too much’ … But WLDS had a huge spike in premarket that didn’t pull back. And that’s probably where a lot of shorts exited their positions and reattacked it at the market open.
- WLDS was just too much of a joke. Even though we love trashy penny stocks with a story, WLDS just took it too far. It’s a company with an Apple watch band that was pumping out AI press releases for like a week. Traders were over it.
But there are great lessons to learn from setups that fail…
Learn more about how to avoid false breakouts here.
And read this post for the three criteria to look for in breakouts. (Hint: WLDS was missing one of them.)
That’s why we make trading plans and wait for confirmation before entering trades. So we stay safe from stocks and setups that have low odds of success.
Learn more with me three times per week during my Market Update videos — signup here to get them now.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade