Advanced Techniques in Day Trading: A Practical Guide to High Probability Day Trading Strategies and Methods by Andrew Aziz

Author:Andrew Aziz [Aziz, Andrew]
Language: eng
Format: epub
Published: 2018-06-12T17:00:00+00:00

Strategy 1: Fallen Angel

One of the powerful strategies I use for low float stocks is the so-called “Fallen Angel”. An Angel is a low float stock (usually less than twenty million shares) that has gapped up significantly due to important fundamental news. The stock will be trading heavily in the pre-market, with often over one million shares before the Open. With low float stocks, and for this strategy in particular, the trading volume is the key. If the stock does not have much volume, no matter how much it has gapped up, or what the float really is, you should stay away from it. Low volume low float stocks are subjected to “pump and dump” or manipulation and trading them often results in heavy losses.

The Angel (our low float Stock in Play) usually opens higher and makes a new high of the day quickly, but will then sell off heavily. The first uptick at the Open is often a trap for bullish traders, and is followed by a massive sell off either because of heavy profit taking from overnight traders or short sellers or both. When the Angel sells off, it has every right to go down, however, if it holds a support, it usually comes back up above VWAP and the previous high of the day. That's typically when you want to catch it.

To summarize this pattern: when the market opens, the stock will make a new high of the day but sell off quickly. You do not want to jump into the trade yet, not until it consolidates around a trading level such as the low of the pre-market, or moving averages on a daily or 5-minute chart. As soon as the stock is coming back up with heavy volume, that is the place that you take the trade to the long side. The entry signal is to see a new 1-minute or 5-minute high after the consolidation with MASSIVE volume only. You have to remember that the volume on the way up needs to be significantly higher than previous candlesticks.

To illustrate this strategy, let’s review my Gappers watchlist on December 14, 2017, as shown in Figure 6.1. As you can see, Schmitt Industries, Inc. (ticker: SMIT) has gapped up almost 70% with heavy volume at the pre-market. As can also be seen on the watchlist, by 9 a.m. almost 700,000 shares have been traded. You can also see that SMIT is a low float stock with a float of only 2.7 million shares. For your perusal, I have also included in Figure 6.1 a 5-minute chart for SMIT showing its pre-market activity.

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