One of the Easiest Pattern to Master in Day-Trading

One of the Easiest Pattern to Master in Day-Trading

One of the Easiest Pattern to Master in Day-Trading 1024 546 Steven Dux
Welcome back to

this week's lesson.

The first point I want to make is that there are 5-10, maybe 20 tickers in 2020 that all formed similar patterns.

This pattern has existed in penny stocks and microcaps for a long time, but only happens 20-30 times a year. This is a viable strategy for a part-time trader. Let’s look at an example. For the first example let’s look at $BNGO. This is different than other examples and I will show you why.

STOCK TICKER:

$BNGO

There are two types of setups that are similar and can be easily confused, let me show you why they are different.

If you look at the long-term chart of $BNGO we can see the price ranges from 50 cents to $7.00. The total gain from the low to high, is over 1000%. We want to see the total gain percentage over 1000% and the individual stock price over $3. If the stock is under $3 it is not going to produce the results you want. In this case, $BNGO is over $3 and it up over 1000%. For this specific strategy we want the market cap to be below $2 Billion. The second criteria we’ll look into is the total dollar amount traded into consolidation. $BNGO consolidated around $5.70 to $7.00 (1/4/21). On that specific day it traded close to 600 million shares in volume. 600 million multiplied by $6-7 in total dollars traded is roughly $3-4 Billion, which is a lot of resistance.

To be able to use this as a swing trade, you will have to short under the consolidation area (within 10-15% of the consolidation). Normally a consolidation is wide which allows for a range between the low and the high. The high of the consolidation is $6.70 and the low of the consolidation is $5.90. To find a good entry after the market open we would be seeking a short between $5.80 to $6.50 and risk the high of the consolidation, $7.00. I try to manage my positions by using correct risk management. I went short 30% of my total size around $5.50-$5.60, right below the consolidation. If it tests the high of the consolidation then I would average my position when the price hit $6.50, making my average for the entire position between $6.10-$6.30.

In this trade, my average is $6.20 and my risk is up to $7.00. I am risking 80 cents out of a $7.00 stock, which is not that bad.

THE $BNGO

RISK-REWARD

$BNGO traded 500 million shares a day so there is enough liquidity for you to be in and out without effecting the stock price.

The risk-reward we can take here, is between 50-75% in terms of how long we want to hold. For $BNGO if we take the entire range and cut it in half, we can gauge what the maximum reward would be. In this case, we are looking between $3.50-$3.70. We also want to be cognizant of major support levels below. In this case we see major support between $2.00-$3.00. Here we would be taking a short at $5.80 with 30% of size because we were in the middle of the consolidation range. If you begin covering around $3.50 to $3.00 you will be able to make 50% from your original position. This pattern will happen again and again. The three criteria for this pattern are:

Stock up 1000% or greater
Market Cap below $2 Billion
Short under consolidation area
If there is no consolidation,

don’t touch it

As a swing trader you want to look for the perfect criteria to hold for multiple days. This isn’t for intra-day action. We want the stock to follow the criteria and follow the rules. In terms of risk management, make sure your risk is within 15%. If your risk exceeds 15% make sure your sizing is small because if you’re risking more than 15%, it is not worth taking the trade.

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