Sometime ago, I highlighted a few stocks that I thought was ripe to go up in my US Market Trading Telegram group.
Right after the open, 2 of these stocks exploded higher immediately. Some of you may be wondering how I found these stocks.
In this article, I will explain how you can also spot these explosive opportunities yourself. I will show you how to find stocks for day trading that goes up rapidly. These stocks can also be kept overnight to gain more profits. So in a way, these candidates can be used for day trading as well as swing trading.
Without beating round the bush I will present to you how I was able to spot these stocks.
Seasoned traders will know that in order to find day trading candidates that explode higher, you need to find a setup in the daily chart. You can certainly day trade stocks using only a 5 min chart setups.
But to fully get an explosive experience, a nice pattern in the daily chart will be needed. A great pattern in the daily chart not only helps to send the stock higher for the day, it also helps to keep the stock going up for a few days.
Which is why many of the stocks I trade, I keep them for a few days.
Some catalyst include:
The lesson here is this : Look for catalyst in a bigger time frame. Zoom into smaller timeframes to find trades
I have written another article titled The 7 Best Times To Buy Stocks For Short Term Trading. In the article you will also find more detailed explanations of when are the best times to buy stocks for day trading and swing trading.
I will still go through these catalyst above in this article and explain them clearly so you can understand them. Then I will show you 2 examples of stocks that have shot up very well. That way you will be able to grasp this knowledge better.
The 50 day moving average is a very powerful psychological support.
A stock that is in an uptrend will often find support when it corrects to the rising 50 MA. Flat 50 MA can also be powerful. But I prefer the rising 50 MA because this often hints to the continuation of an uptrend.
The chart above is the daily chart of Apple stock.
The blue line that is rising is the 50 day moving average. Can you see how the stock corrected to the daily 50 MA and then bounced up higher?
That bounce up for 2 days provided day traders and swing traders a nice trade. In fact, I have written about this trade in an article that details that swing trade. How To Make Money In Stocks Using Multiple Time Frame Analysis.
If you would like to learn more about the powerful 50 day moving average, here are some extra articles for you to refer.
Just like the rising 50 MA, the 20 MA can often act as support for stocks that decline. It is merely a psychological support. If it coincides with price support then it can be very powerful.
Stocks that find support at the rising 20 MA can often give us a quick nice bounce up. Sometimes they may even explode higher for a very long move up in the daily charts.
A stock need not correct to the 20 MA. The stock can also consolidate and then break out as it nears the rising 20 MA. When you see a stock that consolidates near a 20 MA, you should put it into your watchlist and wait for a breakout.
The chart above is the daily chart of the Dow Futures. Notice how the Dow was consolidating near to the rising 20 MA. Once it came very close to the rising 20 MA, it started to explode higher. These are the great times to find setups for day trades and swing trades.
Besides the 50 day moving average, the 200 day moving average is one of the most watched moving average in stocks. Almost all serious traders will be aware of the 50 MA and the 200 MA.
Sometimes you can find a stock that drops to the 200 MA and then quickly bounces back up. Even a 1 day bounce can be a great day trading catalyst. But often times, you will find a 2-5 day bounce up when a stock drops to its 200 MA.
The daily chart of CTRP shows how the powerful 200 day moving average can give traders a nice day trading setup. There are two times that the stock bounce up a bit when it hit the 200 MA. Although the stock did not start a new daily uptrend, the 1-3 days movement is enough to give traders great day trading and swing trading setups.
Of course, the 200 MA does not work all the times. Sometimes the stock may just slash through the 200 MA just like what you see on the chart.
A bullish reversal candlestick pattern in the daily chart can act as a catalyst for day trading and swing trading. There are many bullish reversal candlestick patterns and some of them are:
Some of these Japanese Candlestick patterns can offer a few days bullish move to the stock. Therefore, they give us ample opportunities to day trade or even carry the trade forward to be a swing trade.
A bottoming tail in ISRG, provided a catalyst for the stock to surge higher the next day.
That is the power of Japanese Candlesticks. The more you learn about them, the easier it will be for you to spot day trading and swing trading opportunities.
I have a chapter devoted to Japanese Candlesticks in my Trading Course. Go to the page and scroll down to Chapter 4 to learn more about the power of Japanese Candlesticks.
A stock that is oversold in the daily charts have the potential to bounce up the next day.
Whether the bounce up is just a day or for a week will depend on where the stock corrects into. If the stock is oversold into the area of price support, then it is likely to go up for at least a few days.
Even if the stock bounces up for 1 day, that is enough for day traders to capitalize on it. After all, day traders enter the position in the morning and close it by the end of the day. Bounces that last for a few days will be beneficial to swing traders.
How do you know that a stock is oversold?
There are plenty of indicators that will show you when a stock is oversold. I like to use the stochastics 14,3,3. You can use any indicator you like as long as you familiarize yourself with it.
In the chart above, we can see how the daily stochastics became oversold in Facebook. This provided a catalyst for day trading and swing trading.
The concept of support and resistance is of utmost importance in the arena of trading.
Support will cause a stock to stop dropping. Sometimes they bounce up for a day but many times you will realize that the stock can actually start a new uptrend once it touches support.
For those who master the technical concept of support, there will be endless day trades and swing trades available.
In the chart above, you can see how AMAT corrected to an area of support. It just happens that the stock was also sitting at the rising 20 MA. Notice how the stock bounced up higher the next day. This provided a nice day trading and swing trading opportunity for traders.
The concept of support and resistance is not easy to master. It can take an entire chapter to explain and possibly an entire book to explain all the intricate details.
It may take some time and experiment to master it. But all these will be worthwhile to help you spot the next great trade!
This is perhaps one of the most popular day trading catalyst that traders will look for. Whenever a stock gaps up, it will attract tons of attention. Lots of eyes will be on the stock pre market and when the market opens, traders will be waiting to trade the stock.
There is always a reason why a stock gaps up. It could be good earnings, positive news, positive sentiment etc...
It is not uncommon for a stock to gap up 3% higher and end up closing 7% higher.
Some very powerful technical gap ups include:
In the chart above, we can see that QCOM had a slight gap up. This may not seem important to a new trader. But to seasoned traders, QCOM was actually gapping up when it was near the 50 MA. The stock also gap up above a daily downtrendline. This provided a catalyst for day traders to enter into the stock.
Have you ever noticed that a stock that is in a strong uptrend tends to go higher the next day?
If only you know how to take advantage of this fact.
Playing a stock that is in a strong uptrend can be dangerous. Especially when it corrects and drop drastically, you can lose quite a lot of money. But if you get it right, there is plenty of opportunities to make money.
The way to play a stock that is in an uptrend is this:
Look for continuation patterns in the smaller time frames and buy them.
Let's take a look at an example below.
The chart above is the daily chart of Netflix. A very hot stock at the moment. As you can see, the stock ran up rapidly and is in a strong uptrend. When it was shooting higher, it provided traders with short term trading opportunities.
The chart above is the 15 min chart of Netflix.
Since the stock is in a daily uptrend, it makes sense to zoom into a smaller time frame. When we zoom into the 15 min chart, we can see that the stock provided a day trading / swing trading setup.
There was a The 15 Min Bullish Consolidation Breakout Trading Strategy setup. The stock was above its 15 min rising 20 MA and 50 MA and it broke out of a consolidation to provide traders with a nice trading opportunity.
Day traders can sell the stock before the end of the day and momentum traders could try and carry it forward to the next day.
Of course, the stock collapsed the next day but there were signs that the stock was not behaving well. A seasoned trader would be selling on the way up while looking for signs of reversals. Some may even raise their stop loss to breakeven to protect their capital.
Whew...I think your head must be spinning right now with all these technical concepts. Especially for the new trader, all these might sound like a foreign language.
Don't worry, the more you read, the more you will understand. To help you understand more, let me show you 2 case study below.
Viacom was one of the stocks that exploded right out of the gate. Once the opening bell rang, it took just a few minutes for it to explode higher. This is one of the stocks I mentioned in the US Market Trading Telegram group.
As I mentioned earlier, for a stock to explode higher, we need a catalyst in the daily chart.
The daily chart above shows how Viacom had a favorable setting for day trading.
Some traders may see the declining 200 MA as a threat. As we all know, a declining 200 day moving average can act as a very powerful resistance. Since we are day trading or swing trading this stock, it is alright. That's because the 200 day moving average is still very far away.
When we zoom into the 15 min chart, we can see how the stock formed a 15 min ascending triangle pattern. The ascending triangle pattern is a continuation pattern.
Therefore, when the stock broke out of the pattern, it shot higher rapidly.
After rising a lot for the day, the stock's bullish momentum slowed down. However, it is also forming another 15 min ascending triangle pattern. If the stock breaks out again, it may continue to move higher.
Looking at the 60 min chart above, VIAB is at a resistance area right now.
For day traders who do not want to hold overnight, they can sell off their positions. Swing traders can sell some and keep the other positions. Then if the stock continues to move higher, they can profit from the extra gains.
Stop losses by now should be moved to breakeven so that in the event the stock collapses on the next trading day, the trader will not suffer any losses. They just need to pay for the commission. Anyway, half of the position is already taken off. So it brings some psychological benefit to the trader.
Despite the overhead resistance, VIAB has already broken out of a downtrendline. Therefore, the stock may still have a good possibility of going higher. Since the daily charts still have an oversold stochastics, VIAB might just move a bit higher before meeting the resistance at the daily 200 MA.
The chart above is an update of what happened to VIAB after the second ascending triangle. Its the 15 min chart.
Nothing much happened during the trading day on the 12th until the last few minutes when the stock shot higher. Whenever a stock moves up too much in a single day, it is always a good idea to take some profits off the table.
LBTYA is another stock that exploded higher right out of the gate. I actually shared its class C stock LBTYK. But the patterns are just the same. Instead of using LBTYK, traders can also use LBTYA. Whichever is more liquid and have more trading volume is better for short term trading.
The chart above is the daily chart of LBTYA.
It has all the necessary catalyst for it to shoot higher intraday. First of all, the stock formed a bottoming tail. Then the stock corrected to a support area. Thirdly the stock was sitting at its rising 20 MA.
When we zoom into the 15 min chart of LBTYA, we can see that the stock formed an ascending triangle bottom. Just like what VIAB did. Once the stock broke out of the pattern, it shot up higher immediately.
So how do we take profits once the stock has moved up?
Day traders can close out their position before the end of the day. Some may want to carry the trade forward to be a swing trade to hope for more gains.
The chart above is an update on what happened to LBTYA two days later.
It has not moved that much.
Those who carried the trade forward to the next day could sell some as the stock drops below the 15 min 20 MA. They can sell a bit more as the stock drops below the 15 min 50 MA.
For any remaining positions, the trader can raise the stop loss to breakeven.
That my friends is how you take profits and manage your trade.
While this article may not be able to explain everything in detail about day trading to you, I hope you know by now that multiple time frame analysis is extremely important.
Too find day trading stocks that will explode higher immediately, you need this two formula:
Some bullish reversal chart patterns and continuation patterns include:
After finding a catalyst in the daily charts, zoom in to find these chart patterns in the smaller time frames.
That is the formula for day trading and swing trading stocks to the long side. For shorts, you just reverse the criteria.
I shall put in more examples as the day goes by.
Hopefully this will help you to be able to spot day trading stocks as well as swing trading stocks that will explode higher. It takes some practice but when you study and observe enough, you will be able to spot the next explosive stock!
Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com
Charts with the investing.com logo are courtesy of Investing.com powered by Trading View
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