Hi Folks,
I just wanted to give an update and technical trade review on a recent trade that Art of Trading made and I’m sure many of you took too! $RBLX!
In this trade review we will cover what made this trade setup stand out to me and why patience was important to see the trade through instead of reacting to every little dip and pop the stock made a long the way while holding the swing trade long.
So, one thing I’ve been noticing recently with some of the most beaten down stocks in the market is the base building and accumulation volume characteristic patterns that many of these stocks have been showing in the past 6 – 8 weeks. $RBLX is no different and the accumulation volume patterns is a big part of what got us into this trade and what kept us in it! I think spotting these setups will be important moving forward in 2022!
What is accumulation volume?
Accumulation volume is also known as "Institutional Accumulation" or "Institutional Buying". Institutional investors are what's known as the "SMART MONEY". These are the highly paid individuals who roll up their sleeves and do thorough research about the companies they're about to invest money in. Keep in mind, these people aren't investing few thousand bucks, they're investing millions and sometimes even billions in some of the companies they decide are worthy. So, when they "click the buy button" their footsteps can be clearly seen via the VOLUME of shares traded on that specific day. The "Smart Money" know stuff most of us small fish don't. So, when they are showing huge interest in a stock/company you better pay attention!!
These big fish investors or "whales" as Bud Fox called Gordon Gekko in the famous movie "WALL STREET", are usually the big Hedge Funds, Mutual funds, Pension Funds, Warren Buffet types etc. When these people decide to BUY a stock, the stock will MOVE and usually move in a big way and Volume will surely increase in a dramatic way as they gobble up large portions of a company's outstanding shares and that automatically drives up the stock price, while simultaneously showing a heavy increase in volume traded.
When Institutional investors BUY a stock, often times, the stock will rise and, in some cases, rise sharply over a sustained period of time. This phenomenon is also true on the SELL SIDE (aka 'Distribution Volume').
So, what are we looking for?
What we want to see is a big increase (at least double or triple average daily volume) in VOLUME traded as the stock price ramps up. This is especially powerful thing when we see "accumulation volume" take place over a sustained period of time, like say over a few days, weeks or even months!
Here was the tweet I made with my $RBLX accumulation volume observations:
The identification of the accumulation volume patterns was a key component to this trade. Accumulation volume patterns in basing patterns, after large, long drawn out draw down in stocks can signal the start of bottoming formations and the willingness for the stock to reverse.
Remember, institutions make these footprints, not the mom-and-pop investors. Its important to pay attention to these patterns.
So, What’s next?
Plan your trade! The ideal entry, the ideal stop, and your target!
I alerted Art of Trading members on July 15th 2022:
The stock traded above previous resistance at $35 while it continued to build accumulation volume patterns. Then it made a controlled pullback into previous resistance ($35) which now acted as support.
We took an entry at $39.20 with a stop at $37!
Target $45 to $50!
The stop was slightly below the daily candle low on the day we took the trade.
As the trade progressed forward it slowly built a nice bullish flag type pattern. Holding up against market weakness showing relative strength most days! I tweeted this here:
The trade progressed slowly but never showed signs of breaking down. Here is a tweet I put out on July 25th. Basically $RBLX attempted to breakout but moved down with the market on July 24th. Most traders can talk themselves out of trades on days like this but its important to look at the bigger picture and stick with your trading plan!
What was the bigger picture that day?
$RBLX traded down and tested the 20 EMA and then reversed nicely higher, sticking with its reversal trend against the 20EMA. I tweeted this chart:
See how the stock traded down and tested the 20EMA (blue line) and quickly reversed? This is bullish type behavior.
The stock was able to firm up nicely after the test of the 20EMA! I tweeted this chart mentioning this observation:
See how $RBLX started building a new spot of resistance right around $42.50? When stock charts set up like this you must keep a close eye. Often times this type of price action can lead to explosive daily moves!
The trade continued to develop!
After $RBLX found resistance at $42.50 for the 4th time the very next day it made a tiny ranged candle right on resistance. This is a bullish development. I tweeted this:
These types of small ranged candles right before a stock breaks out are usually a strong signal that the stock is ready to make its move. Again, keeping a close eye on these types of setups is important. You can build strategies around setups that look exactly like this!
On August 1st $RBLX made a Red to Green (R2G) move. This is where a stock opens red then quickly goes green and rallies! $RBLX did exactly this. I tweeted this:
R2G setups are great for Power Earnings Gap stocks the next day after a strong PEG. In a bullish market I truly believe you can make a decent living just trading this one setup alone.
In the case of this $RBLX trade the market was showing a willingness to “Buy the Dip” and rally the stock higher right out of the open. This shows the markets willingness to bid the stock higher, thus creating a potential breakout. Note how out of the R2G move the market bid $RBLX above $42.50 and above the previous day high. Creating a technical breakout on multiple time frames.
We used the expansion candle day to book our well deserved +15% gains! I tweeted this:
Not only was $RBLX a great technical trade it was also a great trade to do a case study type review on.
Many small technical characteristics came together to make this a BIG technical trade.
We learned about:
· Accumulation volume patterns can identify potential bottoming patterns, early
· How previous resistance turned into support ($36 price level from May into Mid July)
· How a bullish setup can make dramatic pullbacks but end up testing key MAs (20EMA)
· How small ranged candles near a breakout area can turn into explosive moves the next day
· How staying patient with the trade often pays better than micromanaging every single move
I hope you found this review helpful!
Cheers and Happy Trading!
Art of Trading
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