Most of traders, I think, can't actually grasp the core concept of Bounce plays.
They see it as reversal trading and when the downtrend continues or the uptrend snaps,
they always left with a big question.
Maybe you have different way of viewing things in hindsight,
or lack of experience with this kind of play,
or your guru told you to hold because you know,
What I like about bounce plays is that, if executed well, it can give you a huge amount of profit in a short period of time.
For those who have day job and cannot monitor during market hours, I recommend to switch to more comfortable plays because this is riskier than trading uptrending stocks.
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My favorite indicators in dealing with bounces are RSI and FIBONACCI lines.
Well, there are different types of bounces which won't be discuss here in details but let me show you my recent trade of bounce play as an example.
APX DAILY CHART AS OF 05.02.2017
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Looking at above daily chart of APX , it is obviously in a strong downtrend because of the presence of multiple bullish divergence and the fact that 100-day moving average(blue line) is above current candles.
The first thing that you should be looking for in this kind play is the Volatility of the decline. The steeper and deeper the drop, the better.
One way of looking at it is, imagine the stock like a rubber band when becomes too stretched it will snap back. The further it goes down, the fiercer the snapback.
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| just don't let it hit your eye (If you are stupid enough) |
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| BOUGHT EOD 05.02.2017 |
I noticed that the drop starts to slow down and waited for it to define its box top and box bottom. Once the Darvas is established, I'll just wait for the stock to hit my trigger level and meet all the criteria before buying.
The last criteria in my list is the crossover of RSI above 50 level.
I categorized this setup as High Conviction so I decided to go ALL IN. Because I'm a high risk trader, I go aggressive with plays that I'm used to and setup must be perfect that the risk is in minimal condition.
I set my Target Price at the confluence of 38.2 Fibo ,MA20 weekly and MA100 daily.
Any prices above those levels are BONUS.
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| DAY 1 |
DAY 1 is strong close so I decided to hold and sell the next day if target hits.
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| DAY2 |
Target price hits on DAY 2 and sold at 2.20-2.24.
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| 2 TRADING DAYS HOLD |
In trading bounces, you don't want to hold for too long and emotionally
attached to "ceiling mentality". Once your target hits, don't hesitate
to sell, bid goodbye and move on to next trade.
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