How to Day Trade Reversals Around Resistance Levels
Today, I made a solid trade in $CLVS that I want to talk to you about, as it provides a great lesson in how to day trade reversals. The stock has been running up for quite some time and has become increasingly extended. The first challenge with this type of trade is not getting in too early; every time you think a stock on a momentum run like this can’t possibly go any further, it will. You’ll get shaken out just in time for it to make the real reversal.
I like to look at the daily chart and think about magnets. When I say ‘magnets,’ I’m referring to price levels that will inexorably draw a stock upwards (or downwards). $CLVS had a powerful magnet drawing it upward — a major level of longterm price resistance around $38. Another ‘magnet’ was the huge gap just above the resistance level. While it was tempting to enter a stock like $CLVS before it hits that level, in my experience it’s usually a mistake. If there’s a major magnet, the stock will reach it. There might be a period of consolidation or a minor pullback along the way, but no major reversal.
This morning, $CLVS gapped up and ran to the long term resistance level, so I started looking for an intraday setup. That opportunity came when it failed to break through resistance, then put in a second, lower high. The red candle that followed the second high was my entry trigger. I put my stop above the second high and rode it lower for a nice return.
Here’s a video walking you through the trade, but if you really want to learn how to trade setups like this, my Bootcamp is the way to go. For a month, I spend 8–10 hours a week teaching you the details of all my trading setups, risk management guidelines, daily routines, scans, and more. I follow that up with a month of market recaps to demonstrate how those strategies can be used in a real market environment. Finally, you’ll move on to a simulator.
Class started yesterday, but if signup now I can help you catch up. You’ll also have lifetime access to every single future Bootcamp class I offer, including videos and live sessions. Send me an email TODAY and I can help you out!!
Originally published at bullsonwallstreet.com on September 21, 2016.