Read Larry Connors' blog – Short Term Trading Strategies
When stocks sell off in a panic based on news, profit opportunities can be large. In most cases, we usually tend to go opposite of the panic for an exhaustion bounce. However, when the 3 minute 5 period moving averages can’t hold support, that’s when its prudent to reverse the position back to the short side. It is very important that traders are aware of the key levels that MUST be held in order for exhaustion buyers to come in. If those key levels break, then the panic is perpetuated even stronger.
This was the case when we played GOOG on 9/19/06. GOOG formed a massive selling panic when YHOO warned of their earnings. Rather than stepping into randomly, we sit back and let GOOG try to bounce by itself. It made an initial bottom at 399 and coiled back up to 402.50s. We saw that the 3 min 5 had resistance there and thus stepped in SHORT at 402 on the rejection with a trail stop at 403. This triggered the 3minute mini inverse pup breakdown to selloff GOOG. On mini inverse pup trades, we target the lower bollinger bands. We caught the move on GOOG down to 397 area to lock the rest of the shorts out, + 5
Panics are wonderful opportunities, just make sure that you keep a cool head and stick to the rules.
Good trading gang!
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.
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