This swing trading strategy is based on my favorite pattern; the bull flag breakout pattern. This is a strategy that takes advantage of momentum in low float stocks that are trending. By trending I mean they have had strong moves within the past two weeks. These are stocks that are on many traders watch lists because they may have missed the first move. They have also been on our gap scanners recently with a positive news catalyst.
Swing trading attempts to capture gains in a stock (or any financial instrument) within an overnight hold to several weeks. Swing traders use technicalanalysis to look for stocks with short-term price momentum.https://www.investopedia.com/terms/s/swingtrading.asp
Here I will provide a couple examples that have been valid in multiple forms in the recent weeks. As of this writing we have been seeing strong momentum in the low float biotech sector since the New Year. Personally, I have spent many hours watching these stocks all day long when I predict a break out (see below for what I am looking for.) I have noticed similar patterns across the daily and intraday charts, as well as the level two and time and sales. As I get to watch other similar situations develop in the coming weeks and months I will update with more examples.
This low float runner has been a recent favorite of mine. It has proven the bull flag daily breakout on multiple occasions. On 11/29/18 they release news on “…formation of an advisory board for alcohol use disorder treatment.” Again, to me that could mean anything. Does it mean they have an alcohol abuse problem among employees? Or are they developing a drug to treat alcohol abuse? I don’t know, and I don’t’ care. Why? Because I’m just here to make money. That day proved to be strong for momentum day traders and that is all that maters.
After a huge couple days I look for a pull back. A period where interest dies off. This particular stock needed a while to really give an A quality set up. What I am looking for is a pull back to the 9ema on the daily chart and then the first daily candle to make a new high versus the previous days candle. In reality this stock gave us multiple oportunities to profit off swing trades, but for demonstration purposes I will chose the most obvious. The most obvious set ups will usually provide the best opportunity. We finally see this on 1/18
- 1) Bull pole – A period where irrational buying occurs
- 2) Pull back – A period where profit taking and indecision occurs
- 3) Entry #1 – Taking a small position when the pull back reaches the 9ema on the daily. This would be in anticipation of the next couple days to see resolution to the bull flag pattern. Setting your stop at the low of your entry day would make sense because this would let the chart determine if you were wrong or right instead of convincing yourself to hold through a failed pattern.
- 3) Entry #2 – The first daily to break the previous days high on higher volume. Notice the immediate resolution to our entry providing low risk.
Read how I turned a swing trading idea on $BIOC into a perfect day trade here.