This market has been a volatile beast with almost every day filled with decent to large moves. Let’s be honest: It is hard for a swing trader to get an advantage with those moves. Obviously, when the market closes, there is never a guarantee it will open higher or lower the next session. If we knew that, trading would be a whole lot easier and we probably wouldn’t be having this chat. But there is a method I use on a constant basis that I have found helps me tremendously. It is to monitor how the stock closes on the day.
This is even more essential if I am looking for a bullish or bearish directional trade. For example, I like to enter a bullish trade closer to the end of the session if the stock looks like it will close toward the high of the day. Naturally, I want the stock to close in positive territory. But if there is some resistance or if the stock is extended, odds tell us there is a better chance the stock will pull back. If there is a strong bullish close at or above resistance or if the stock does not retreat much, that shows buyers have not moved on. This gives us better odds the stock will move higher, at least at the open. Many times, you will see the stock continue to move higher, particularly if it is breaking resistance or triggering a bullish reversal.
For a bearish potential trade, look for a bearish close with the stock closing near the low or at or below a support level. If it does, I look for a bearish entry toward the close again.
Many times, the stock will continue to move lower, especially if support has been broken or that bearish close has triggered a bearish reversal.
Of course, there is no guarantee whether a stock closes bullish or bearish that it will continue in that direction the next session. Market risk can move stocks too, like a gap that is the opposite of your expected move. But being patient and waiting to enter a position when there are more odds on your side can improve your results tremendously, and that is a guarantee.
Senior Options Instructor
Market Taker Mentoring, Inc.