Hi Folks,
Today we’re going to do an extensive overview of a “Avalanche Wedge” day trade that I made on $NEX yesterday (2022-06-08). First off, most day trades are sensitive in timing, entry, exit, and technique. I feel that it is best to first study the idea, learn how to spot the setups and then finally experiment with the idea and see how it fits your trading style. Eventually through practice you’ll become more confident in the way you execute the strategy, maybe even adding your own twist to it – This is the “The Art of Trading!”
The idea behind the “Avalanche Wedge” day trade is basically to capture quick day trading opportunities in powerful stocks that sell off sharply right from the open, using the power of market algorithms to your advantage. The most ideal conditions for this setup are as follows:
Stocks that are in a strong DAILY UPTRENDS that get quick, sharp INTRA-DAY pullbacks.
A stock that GAPS UP at the open and the FADES LOWER in a STEEP and RELENTLESS manner.
Stocks that sell off and create a Falling wedge patterns between 930AM EST through 1045AM – 11AM EST. Pullbacks of 8%, 10%, 12% and even 15% during this timeframe are the most ideal candidates!
Remember – The Steeper the Wedge pattern, The better the Avalanche Setup!
As for stop losses on the trade, use what you would generally use as your regular day trading risk profile. There is an Art to this strategy. As far as loss control goes, I personally, on an average avalanche wedge trade, I risk no more than 2% - 3% and will often lock in gains as the stock bounces back and recoups 1/3 to ½ of the initial decline.
With this information at hand, what you’re trying to do with this strategy is capture a quick bounce in a stock that is short term oversold. In my experience, over the years, I’ve noticed that often times market algorithms will sell off a stock very sharply off the open and continue to pile in the sell orders in a relentless manner until around 11AM EST. Then, more often than not, some sort of tradeable reversal will present it self. Some of these reversals end up being huge and end up reclaiming the entire drop and on the other hand some of them end up being smaller in nature and continue their way lower. The key takeaway from this is the time: 11 AM EST. I normally start looking for avalanche trading around 1030AM EST and then will pick out the best candidates as we approach 11AM for potential plays (Note – Market Algorithms tend to be most active between 11AM & 2PM EST, which I have shown and explained in the AoT feed countless time. Learn to spot them!) I only take the absolute BEST setups for this strategy. (And many times, will not take them dependent on other factors, i.e. How strong the overall all market is or maybe something like a news event that is taking the stock or sector down)
There is a lot of “art” required to do this strategy and that’s why it requires practice and experience in the market to be able to execute this in a consistent, strategic manner.
How did I apply this knowledge and Strategy to the $NEX Avalanche day trade?
1. $NEX Daily Time Frame Chart – Strong Uptrend! :
The first step was observing a stock that was in a strong daily uptrend! The reason this step is so important to the strategy is because you “The trend is your friend” If a stock is in a very powerful daily uptrend and then sells off in a quick, sharp intra-day manner more often then not it can find its footing and reverse back in a controlled manner. When observing these stocks for a potential avalanche play make sure it isn’t a “bad news” event causing the sell off. You want the selloff “Algo" driven)
2. $NEX 5 Minute Time Frame Chart – Identify the Setup! :
Identifying the setup in 3 easy steps:
The Sell Off - You want the sell off to come quick. within the first 90 Minutes. Losing 6% or more in this timeframe.
The Avalanche Wedge - Note the pattern annotated in the chart.
Seller Exhaustion - Consolidation near lows, tapered volume, & bottoming technical patterns. Positive MACD & RSI Divergences.
If these conditions are met consider executing an Entry. Your stop loss should be slightly below the Low of Day. Risk management on these fast moving trades is key!
3. $NEX 5 Minute Time Frame Chart – The Art of Trading! :
“The Art of Trading” - As you can see the stock bounces about 4% in 20 minutes time from the entry point. This is where experience plays a big role in the “Avalanche Trade” setup. The stock re-captured about 2/3rds of its sharp move down in roughly 20 minutes time, giving you a nice chance to book gains! Again, it is very important to note that this is a day trading strategy not a swing trading strategy!
Watch this instructional video below on a avalanche day trade that AoT made on $RUN!
This concludes the Avalanche Day Trade review! I hope you found this helpful!
Cheers and Happy Trading,
Art of Trading
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