How To Trade Crowded Trades

How To Trade Crowded Trades

How To Trade Crowded Trades 1024 546 Steven Dux
Welcome back to

this week's lesson.

Today I want to go over some differences when looking at resistance, so we’ll use $ADIL and $ALQA to do so.

$ALQA shows resistance near $5 with upwards of 40 million shares in volume, whereas $ADIL doesn’t have much resistance at all. If you see volume trading over resistance, then it will be difficult to break down. $ADIL did have a breakout level around $3, which was tested multiple times before a late-day short squeeze and a gap down on the following day.

STOCK TICKER:

$ADIL

Now, the gap down didn’t break $3, which shows how hard it can be to use the overstaying gap down pattern because if you short at $4, then your cover and everything in between becomes support. With an overstaying gap down, you’re looking at a winning percentage of 10-15% paired with a perfect entry and exit. That percentage is on the lower side because it’s difficult for a squeezed stock to gap back down to the major consolation level, and that’s why this pattern wouldn’t be ideal for $ADIL.

STOCK TICKER:

$AQLA

I wouldn’t suggest shoring $ADIL just as I wouldn’t short $AQLA, and here’s why.

$AQLA started out consolidating near $3, and it’s unsure if this stock will break that level. We see it panic down to the resistance level, which means there could be hope in the next few days that we see $AQLA gap down, but even then, the range is small at $2.60 to $3. A forty cent range would require a well-executed entry and exit as well.

Because I just covered two runners that I would stay away from, I want to review crowded trades with the holidays still approaching.

When you don't find a ticker that fits your criteria...

…and you’re finding yourself getting bored, seeing a crowded stock come into play might get you excited enough to make a mistake. A crowded trade means that the intraday volume exceeds 30 million shares, and you will see much more of this in the coming months. Christmas can ignite traders who want to make large gains quickly, which can call for irrational trades and fake-outs. The best way to get in on crowded trades is to wait until the ticker shows weakness on the next day.

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