I wanted to go over a quick trade I made and that I do quite often. It’s called the end of day fade. When you’ve got a stock that’s up a lot, at some point its trend gets so extended that you’re going to have a quick potential opportunity for a counter trend trade going the other way.
NVDA is a stock that I trade all the time. This stock has great range, moving dollars a day and allowing me to catch good chunks. It also tends to trade on a lot of volume, 34 million shares on this day. So it’s really easy to get in or out. The setup I traded was based on a rubber band type trade. This stock was at $138 a few days ago and it’s been up 7 days in a row. Now NVDA is piercing the top of the Bollinger band, approaching the top level of resistance, and exhibiting really overbought stochastics. Trends are great when they’re gradual but when something runs too hot too fast, you often can get counter trend snap backs. Buyers are getting tired and they can’t push the stock up anymore.
My idea generation begins with the daily chart. Then, when I’m watching this stock intraday, I look to see how I can nail this thing down. On the 5 minute chart NVDA was simply riding its 9 EMA for a few days. It showed its first sign of a crack. In the morning you can see a big dump of about $4, which caught my eye. As it starts to bounce, you see the bounces fade off with lower highs unable to break over its previous highs. Now I’m hunting for my entry.
Our first entry would be in the wedge break. But as it flagged sideways for a few candles and the 9 EMA is curling down, we got an EMA sandwich. When your MAs are coming down on the stock, it compresses it to get it to push down. It will also help you manage your risk so that you can put your stop above the MAs. I entered with 300 shares and scaled out along the way. This was a quick counter trend trade. I’m not marrying it, but trading for some quick and easy profit.
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