How to Day Trade Momentum Sympathy Plays

This summer has been one of the best markets we’ve seen in years. Usually summer trading is slower with fewer opportunities. This summer has not been the case. Chinese IPO’s like IQ, HUYA, and BILI have offered monster opportunities consistently the past few weeks. In the trade recap below we will talk about how to use the opening range breakout strategy to get entries before a big move is made in these stocks. Here’s a video going over our trades on these recent Chinese IPO’s:

Why HUYA, IQ, and Other Chinese Stocks are Exploding

You are probably wondering how did we know that these stocks were going to be explosive momentum stocks to watch this month. There are several reasons:

Recent IPOs

All of these China stocks IPOed a few months ago. IPO stocks have very little chart history cause they haven’t been trading publicly for very long. This means there are very few resistance levels to hold the stock back. Once these IPO stocks break over their all time highs, you will often see some incredible follow through to the upside. Learn more about how to trade IPO stocks in this article here.

Low Float

HUYA and IQ have tiny floats, with both under 15 million shares. This means that it takes very little demand in order to move these stocks. When stocks make huge moves like we’ve seen in IQ and HUYA we see something known as float rotation. This is when a stock trades its whole float in a trading day, and the float ends up rotating because there is so little supply in proportion to the demand. As a result the price of a stock’s shares skyrocket.  

Strong Sector

As we talked about in the video, stocks that are apart of a big sector run will often trade in sympathy with each other. When you have stocks in a strong sector that are breaking out to all-time highs and are recent IPO’s, you get huge moves like you’ve seen with HUYA and IQ. IQ has been the leader of this monster sector run.   

Pay Close Attention To The Leader

During these huge sector runs, you should be paying close attention to what the strongest stock in the sector is doing. When IQ has had an opening range breakout to the upside, HUYA and BILI have usually followed suit. Likewise when IQ is pulling back, HUYA and BILI have tended to do the same as well. You want to align your trades on the sympathy stocks with the trend of the leader.

Strong Daily Trend

All of these China names have had an interesting daily trend. They are getting to the point where they are getting overbought, however they are not going parabolic. You can see on the daily charts of these China names that they have had days where they pullback and consolidate. They have all been on very orderly uptrends. When you are looking to day trade a momentum stock, all of these China stocks have the perfect daily charts. They have a very obvious trend to align your intraday patterns on to get high probability trades to the longside.

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