Read Larry Connors' blog – Short Term Trading Strategies
Jea Yu has been involved with the equities markets for over 10-years. He specializes with intraday trading in the U.S. equities and futures markets. To receive a free 7 day trial to Jea Yu's Underground Trading Pit, click here or call 888.484.8220, ext. 1.
When a stock gaps down multiple points on news, like an earnings
warning, we call them "dumpers." Many traders try to time the bottom on dumpers
and catch the bounce. We have a more formatted way to play the bounces on these
dumpers. The first thing we do is wait for the 3-minute lower Bollinger bands to
catch down to the stock price. Once the 3-min lower Bollinger band is broken
then we use the 1-minute 20-band stochastics bounces to step in long. The
initial target on the trade is the 3-minute 5-period moving average. Once the
3-min 5-period moving average is broken, then we trail stop the 3-minute
5-period moving average on the way up to the 3-minute 15-period moving average
depending how the NQ’s are trading. We also pare out profits as the 1 minute
stochastics breaks through the 80 band on the oscillations.
We played (ADTN | Quote | Chart | News | PowerRating) dumper off the open on 3/10/06. ADTN gapped down on
earnings warning. We saw the 1-minute stochastics crossing up through the
30-band in a mini-pup formation. We took longs at 25.60 at 9:37am for a
tightening to the 3-minute 5 target at 26. We pared 26 overshoots and trailed
the 3-minute 5-period moving average until the 1-minute stochastics completed
its full oscillation to exit at 26.35, out + .75
Remember that first you need to base that lower Bollinger
band. Once that is based, it becomes your stop as you target the 5-period moving
average. Once that is based, it becomes your stop as you target the 15-period
moving average. In the case of ADTN, the noodles were very weak and selling off,
so we locked the 1-minute oscillation through 80 band into the buyers.
Good trading gang!
Jea Yu
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