I was eyeing a little-known play for a potential move…
While C3.ai, Inc. (NYSE: AI) took a breather from its recent run for a day — probably because earnings were after hours and traders were playing it safe — there was another AI stock on my radar.
That pattern played out after 9:45 a.m. and the stock rocketed 39% higher!
So today I'll break down why this play worked so well…
Plus, I'll share how you can recognize when to lock in any potential gains and walk away.
This Pattern Played Out And Created A 39% Move
The red-to-green pattern works best in stocks that had a strong previous day but open red and look like a first red day.
Short sellers love to guess the top in these stocks. They like to take positions in the morning and use the previous day's close as their risk…
That's why we often see a stock drop early in the day … But as dip buyers and stubborn shorts from the previous day start to buy, the stock slowly starts to climb back up.
Then the stock crosses above the previous day's close — the red-to-green level — and boom!
First, the stock should close near or at the high of the day on the day before. This is important because it shows strength and momentum.
Second, we prefer stocks that are breaking out to multi-week, multi-month, or even all-time highs. This indicates that the stock has the potential for a significant move.
Lastly, we want to focus on stocks in hot sectors, such as biotechs or artificial intelligence stocks which are hot right now.
You can stick to a 3 to 1 risk-to-reward ratio, you can use Oracle's support and resistance levels, or you can use a resistance level you see on the chart.
You can see on the daily chart that CXAI spiked into an Oracle resistance level. And to the highs from its recent run.
By following the criteria for the red-to-green pattern and having a well-defined plan, you can learn to take advantage of these kinds of moves.
It's important to study these setups, take notes, and learn from them. Not every trade will work out, but by being selective and disciplined, you can improve your trading skills and grow your account.
He put together a special presentation to share it — stay tuned to the end for an important announcement!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
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