How to Trade the Second Day Play Setup

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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