AAOI is a stock that was down on Friday by 35% based on bad earnings. This stock got smoked out. Looking at the daily chart, AAOI dropped from this negative news hitting the lower Bollinger Band. Additionally, AAOI was struck with an SSR, a Short Sale Restriction. Often times when a float, the number of shares outstanding that you may trade, is really low on a stock we can really nail a squeeze in the other way. The float for AAOI was 18 million and 17 million shares in volume traded that day. Basically the entire float was dumped and rotated. You can be sure that anyone that wanted to sell got out of this thing.
AAOI Squeeze Trade
First thing we see in the morning was it opening strong, a tell tale sign that maybe this thing can squeeze. Once the stock started to hold its opening range, I got really interested in trading it at the open. I wanted to get in quick. As AAOI started holding lows and holding above its MAs, I’m thinking a squeeze was going to start.
I entered a few 100 shares at the open and ended up scaling out into the upside. Once the stock came back and held the VWAP, that’s a sign it may have another big move. When you get a stock that moves hard and you get a pullback where the first test of that VWAP holds, you have to be ready to enter. Once it starts to hold, I come in and start adding my position close to support. Then, as it continues up the trendline, you start adding more. I added at the flag break and scaled out of the move. I added at the following pullback. When the stock dips down and remounts the 9 EMA, you can re-add this for the next run.
It is very important to remember that when you get a stock that is a trender, it’s an amazing thing. When you get a stock that starts to trend, you always have to re-hit based on setup. One of the earliest mistakes I would make is just buy and sell, chasing and overtrading. But what you want to be doing is using different setups based on the time of day.
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