The dip and rip pattern might look a little different every time it plays out … After all, no two stocks are the same, with the same volume, and news, so they won't ever look identical…
But there are four distinct parts of the dip and rip pattern that are present every time the pattern plays out.
So today I'm giving you step-by-step instructions on what to look for on a chart to help you spot a dip and rip.
Step 1: Look for a Big Premarket Gainer
First things first, we need to find the right stock to trade.
Start your day by looking for stocks that are making big moves in the premarket. These can't just be any old stock that's spiking…
These stocks should meet some important criteria:
- Low Float: This means there aren't too many shares available for trading, which can lead to explosive price moves.
- News Catalyst: There should be some exciting news about the stock. Maybe it's a new product launch, a partnership, or impressive earnings.
- Former Runner: If the stock has a history of making big moves in the past, that's a good sign that it could potentially run again.
- High Volume: You want to see a lot of trading activity, especially in the premarket.
When you find a stock that checks the boxes and is running in premarket on a press release and high volume, you might've found a potential dip and rip candidate.
Step 2: Watch for a Pullback at the Market Open
Once you've identified a promising stock, keep a close eye on it as the market opens.
Ideally, the stock should pull back or "dip" at the open.
Why do we want this to happen? We want it to lure in short sellers who think the stock is going to crash.
But since not every dip and rip looks the same, the stock might have its dip in the premarket. Or it might not have a significant dip…
It could just consolidate along VWAP below the premarket high and that can still be enough to load it with shorts if it consolidates long enough…
Step 3: Watch for the Stock to Stay Below the Premarket High Until 9:45
After the initial dip or consolidation, you'll want to watch the stock's behavior.
It should stay below its premarket high until around 9:45 a.m. This is important because it gives short sellers more time to build their positions. That can make the potential spike even bigger if the stock rips.
If you're new to trading, it's a good idea to wait until after 9:45 a.m. to enter your trade.
This way, you avoid the choppy morning action that can be frustrating and might stop you out of your position early.
Step 4: Watch for a Break Above the Premarket High
Now, here comes the exciting part. If the stock has been behaving as expected, trading high volume while staying below the premarket high without giving back the entire move — it's time to watch for a breakthrough.
This is where the stock rips above that premarket high and you take an entry to ride it higher.
And that's it!
Those are the four simple steps to recognize a dip and rip pattern. It's all about finding the right stock, waiting for the dip, and then riding the wave as it rips higher.
Here's what the four steps look like on a chart…
VCI Global Limited (NASDAQ: VCIG) was my number one watch for a dip and rip yesterday…
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