Trading is all about trends and patterns.
Not just the patterns we use within the stock’s price action…
I’m talking about identifying which trades to take because of what’s working.
To figure out what’s working, you have to keep track of your trades. Keep a trading journal.
In case you haven’t been keeping track, I’ll share my journal with you.
We’ve been locking in a lot of wins recently on oversold names that rally for a bounce. And we just banked on another one…
I share my trades with you so that you can learn from my wins AND my losses.
Recently we’ve been winning with a specific setup. Look for this price action next week.
Oversold Names
I don’t guess the direction of stocks in the market. I wait for them to stretch too far from the average, then I lean against the crowd.
Price action moves like a rubber band. Stretch it far enough one way, and it snaps back.
- Buyers dry up at the top.
- Sellers dry up at the bottom.
That exhaustion is my favorite trade setup.
Right now, the extreme selloffs that turn into bounces are working really well.
The names I want are the ones everybody seems to have left for dead. A quality company, sold off for days, sitting far below its 50-, 100-, and 200-day moving averages, with momentum screaming that it’s oversold.
The RSI is another one of my confirmation tools. It measures momentum on a scale of 0 to 100. A reading under 30 tells me the selling is running out of gas, and a bounce is close.
When a stalwart stock flashes both signals at once…
- Stretched below the moving averages
- RSI in the tank
The snap-back becomes the highest-probability move.
That’s the pattern we’ve been trading. And it keeps repeating.
Study those past examples.
Here’s the most recent…
My Walmart Trade This Week
Walmart Inc. (NYSE: WMT) fell right into our lap.
The stock topped near $134 back in February of this year. Since then, it’s done nothing but bleed lower.
By the close on July 1, WMT had slid to $108, roughly 19% off its highs and deep into correction territory.
Here’s the chart I was looking at before I made the trade:
Here’s the trade alert I sent to subscribers:
And here’s the bounce I sold into on July 2. It doesn’t look like much, but with short-dated call contracts, the percentage gain increases exponentially.
I was ready to hold over the long weekend if the trade needed room… But it didn’t.
WMT gapped up the next morning and pushed higher. By 11 a.m. on July 2, the stock had popped into the $112 area. It was a clean move straight off the oversold lows.
And with my short-dated calls amplifying every tick, I banked the trade right there.
A strong finish to a strong week.
Plus, I get to head into the Fourth with a win already in the books.
Stay Ready for the Next One
Watch for well-known names that fall for several sessions in a row.
When a quality stock stretches far below its moving averages and the RSI says it’s oversold, you’re looking at the same trade I just made on WMT.
Don’t chase the drop. Wait for the extremes, lean against the crowd, and protect your account against failed moves by finding support to act as your stop loss.
You just saw this setup work on WMT.
Now you know what to hunt for… It all starts again on Monday.
Stay Street Smart,
Jeff Zananiri
*Past performance does not indicate future results, Not typical.
