While quite a few traders are using gaps to create watchlist candidates these days. I’ll share one other way to trade a very familiar pattern.
You simply find strong, trending stocks and find a pullback (which is what a dummy spot really is) to buy. Last week I gave a short watchlist of strong trending stocks. Among them was Republic Airways (RJET). It has just broken out and was in ‘open air’ territory. There were no unhappy longs in this bunch.
Since previous resistance had now flipped to support, an orderly pullback to that area would be a good low risk opportunity to climb aboard this trend:
Note that this is more of a swing trade example with a longer time frame (hourly). The stop loss was were I felt it would be clear that the new support had not held.
Put another way, the expansion was on March 15th (Thursday) when the resistance was taken out. The contraction was the following day - when the trade was entered. And the expansion continued in the following days. Expansion, contraction, expansion… now where have I heard that before?
My point in showing this is that you don’t really need gaps (although they are a good pattern too). The important thing is to take an idea, add your own thinking and come up with something which you can call yours. All great traders got there by doing their own thinking and forging their own paths. And thanks to the nature of the market, there are a myriad paths to success.
Take a look at the other strong stocks I featured and you’ll see there were others like RJET.
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