How to Trade Second Day Play

Second Day Play

If you are trading momentum stocks on the first day only and then walking away, you are leaving a lot of money on the table. A stock with momentum will often run for several days. The best ones — usually those with a strong fundamental catalyst like an earnings beat — can run for weeks. The question becomes – how do you take advantage of those additional trade opportunities?

One of my favorites the second day play. As the name implies, this setup is viable the day after a big move. Again, I like explosive momentum stocks the best, where you had a 20%+ move the previous day. Once I see something like that, I watch for a weak open the next day. This is a frequent occurrence. Whenever a stock runs up huge in the course of a day, you’ll get traders taking profits the next day and/or in the premarket period. Once you see a weak open, then you begin looking for an intraday pattern to trade.

$CYCC is a great example of this. After a huge run on the 16th, it opened on the 17th and immediately dropped. I began looking for one of two patterns to develop:

  1. A red to green move. We’ve gone over this setup before. It’s a speedy morning trade. You look for a red open, and when the stock goes green for the day (breaking above the previous day’s close) you buy it. You’ll often get a big spike.
  2. A rounded base. Essentially, the stock consolidates around a support level, then starts inching upward.

$CYCC opened weak, and then there was some rounding action. It built a nice flag, holding above its moving averages the whole time. I waited until I found a reliable “line in the sand,” where I could expect a nice breakout, but also had a clear stop loss level if the trade went against me.

second day play

I bought 2000 shares when it broke out of the flag and above the previous day’s resistance. It had a nice spike up to $8, and I sold part of my position. It then pulled back, but held the previous breakout spot and its moving averages, which was a sign of strength. This would be a good spot to add to your position. Sure enough, we got another push and I sold the last of my shares in the $8.57 – $8.60 area for a total gain of $1300. Here’s a video on the second day play setup!

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