Kardec Trader explains a trade selection rule: wait for at least three days of major price extension, then look for a gap-up followed by a red day four, or a weak open that bounces but fails at the previous close. This pattern signals profit-taking and a potential entry point.
At least three days' worth of extension.
Day three around $30; opening on day four at $25.
We're going to draw the daily chart, and we're going to draw the intraday chart. And what I need to see here is I need to see at least three days worth of extension. If it's one day green and then it goes down, it doesn't really count. A stock could go parabolic 500%. It's not going to come back red. On the day that it goes 500%, I at least three days worth of major extension. This is the daily chart kind of started coming down towards the end of the day. So we open up somewhere here. So let's say this is $30 and this is $25. So now we're opening up on day four at $25. I would prefer if we gapped up again and then went red. But there are certain times where on day four, it opens up weak. And what I'm looking for here is I'm looking for a bounce without the previous day's close reclaiming. So I want to see it bounce to the previous day's close and fail, proving once again that the profit taking is occurring.
