Bearish Power Earnings Gaps, Inside Day Candles and More!
Hi folks,
Recently we went SHORT $RBLX in the Short-Term Trading portfolio. We ended up closing this trade out for a 9% + gain inside two trading days!
So, what did I see in this trade that made it so special? What was the core reason behind the trade and how did we use classic technical analysis to help us score on this awesome short-term trade? We used two core ideas with this trade – Bearish Power Earnings Gap setup and an inside day candlestick setup. We will talk about these technical terms and how they influenced this trade for a positive outcome in this post!
By now, if you’ve followed me for any length of time you have probably read about and used my Power Earnings Gap system that I developed. If not, here is a link about the How-to on the Power Earnings Gap system.
Basically, you can use the inverse of this idea in Bearish Market scenarios, A Bearish Power Earnings Gap or B-PEG for short! since most stocks have been quite bearish for an extended period of time, this is the time to be applying this technique.
So, how do I define a “Bearish Power Earnings Gap” (B-PEG):
A Bearish Power Earnings Gap(B-PEG) is basically: A stock that gaps down after reporting weak earnings and closes the day by printing a very strong weak candle. A candle that closes at or near LOWS of the session, this is the most ideal and perfect Bearish Power Earnings Gap candidate! Volume will be automatically huge since it’s coming on news of an earnings report so that’s going to add even more conviction to the move since institutions are likely evacuating the name. Remember, it is important for the small players (us retail traders) to follow in the footsteps of the BIG GUYS (the institutions). Following these footprints can be extremely profitable if you know what to look for! Stocks that gap down (especially stocks already in a confirmed down trend) on HUGE volume and close near the days low, are doing that for a VERY good reason. If the BIG sellers see future weakness, I want part of that too!
I use the B-PEG strategy often to look for stocks to short. I add these weak stocks to my watch list and I use technical analysis to find a great entry and when I feel the time is right, I take a trade. Remember you want to SHORT stocks that are ALREADY weak and this is a great way to spot these stocks and execute upon the weakness!
Now that we know this basis behind the core strategy how did $RBLX catch my eye as a strong short setup?
So, $RBLX posted a Bearish Power Earnings Gap. Followed by an inside day! Notice how the inside day is near the lower half of the Bearish Peg Candle? This is important to note. Inside Day candles are generally nor bearish or bullish. Although, you can differentiate an inside day candle by the positioning of its close. Consider this, an inside day candle that closes near the bottom of a trading range of the preceding candle can be considered more on the bearish side, while one that closes near the top of the previous day candle can be considered more bullish!
Here is what an inside day candle looks like, close up on paper:
The color of the candles between the 2 days don’t matter much. The inside bar closing characteristics is what you should pay attention to, whether bullish or bearish on the setup!
To manage risk trading inside day candles, for short term setups you use the high or the low (Depending on bearishness or bullishness of the setup) of the inside bar as your stop loss. Usually slightly below or above the high / low of the price range.
We spotted the setup and we put a plan in place. The core strategy was the Bearish Power Earnings Gap setup followed by the inside day candle on the next day!
So, how did I go about alerting this setup to the Private Art of Trading Community members?
Note the Stop loss placement. The Stop loss was slightly above the high of the inside day candle!
“The Best Trades Work Right away!”
The very next morning we took half of the trade off for roughly a 10% gain from our entry. We used the opening market weakness to our advantage. Taking half off at the price point we did ($49.50) essentially covered our risk on the rest of the trade if we were to get stopped out of the remaining portion of the position!
here was the official alert in the Private Feed!
After booking half we held the second half into the next week!
On February 22nd we were presented with another gap down open that we took advantage of and booked the gain!
We averaged a 9.26% gain inside 2 trading days!
To summarize what kept me interested in this trade and how I spotted the setup I tweeted this:
As long as you have a sound plan in place, based on sound technicals and you stick to the parameters of how the setup should and shouldn’t work. You can replicate these same sorts of trades for yourself!
To finish this post off here is a very special video that gives an example of a similar setup (You’ll notice the inside day candles after the bearish bar)
This video is a sneak peak of what my up-and-coming educational e-book will have to offer!
I hope this helps!
Art of Trading!
Comments