If you know me, then you’ve probably heard me talk about this pattern a million and one times.
I call it the J-hook.
It’s the gift that keeps on giving, and it has potential to work for both day and swing trades.
J-Hook Explained In 30 Seconds
I usually explain this pattern with a knife cut analogy.
Think of it as a fresh cut on your finger — at the start, there’s profuse bleeding.
Overreaction. You get caught off-guard and start panicking.
Shortly after…the bleeding stops, you put on a bandage, and things start getting better.
The Fish-Hook or J-hook pattern occurs when a large wave of emotional panic selling drives a stock very far into the oversold territory.
Again, emotion is what drives the price action most of the time.
Eventually, sellers dry up, at which point buyers and short covers get to work allowing for a quick upside.
Please note: this works best if there’s a 50% drop in the stock in under one month.
Here are two classic examples of this pattern:
Same with GLUU:
It requires a market that has horrible news. You just have to wait for the panic (bleeding) to subside and then it gets better.
The up move may only be a fraction of the preceding down move, yet the move may be sizable if entered correctly.
You can see, the anticipated move (marked with blue) looks quite literally like a Fish Hook. A patient and timed entry can give you a very clean and limited risk.
My VEON Trade:
VEON’s stock had been hit hard by the sanctions imposed on Russia (the country it generate nearly half of its revenue from) after the invasion of Ukraine.
But just recently, March 11, the stock jumped 8.6% in premarket trading, after they announced paying off their $259 million) loan with Russian state-owned bank — VTB Bank.
Last Friday (March 11) morning, I highlighted VEON as it positioned for a trend reversal and based on its low RSI (Relative Strength Index), it entered oversold territory.
Here’s a snippet of the message I sent out:
RSI is a way traders use to study the price movement of a stock. The whole point is to measure how quickly other traders are bidding the price of the security — either up or down.
Most traders interpret RSI readings below 30.00 as a solid sign of oversold conditions.
A few days later, the pattern is looking pretty and I think it can climb into the $.60’s.
I’m still open on this trade, but I’ll trim and trail if it continues to climb in the next couple of days.
But so far I’ve been up 24%…and still patiently waiting till it enters $0.60 zone.
The worst thing you can do as a trader is putting your money on a stock when you’re not sure what to do.
That’s why it’s important to enter the market with a solid plan, good risk management, and be ready to adapt when things suddenly change.
Anyways, if you’d like to learn more about the J-Hook pattern and see actual examples…