As I have said many times before, price action is the undisputed king!
Respecting the price action, listening to it, putting your bias aside, and riding the momentum can pay off in a big way.
There is no better recent example of this than CEI from yesterday.
There were numerous textbook setups in the stock yesterday. An incredible amount of high probability setups existed that offered immense risk: reward.
When a stock is trading unusually high volume and seeing a significant expansion in its range, it’s essential to focus on high-quality setups and price action. Trading your bias and fighting the price action could get you into serious trouble.
Remember, volatility is your friend, and as traders, these are the types of days and setups we dream of.
So, without further ado, let’s go over some of the fantastic opportunities from yesterday.
Camber Energy (CEI)
CEI is up over 500% on the month. The stock first broke over $0.50 with increased volume and since then has soared to incredible heights. Yesterday the stock made a high of $4.85 before pulling back.
CEI has consistently traded exceptional volume since breaking out. Over the last two trading sessions, the stock has averaged close to 850M shares per day.
CEI has an ATR of 0.44. Yesterday the stock had a range of 2, almost five times the ATR.
With that unbelievable volume came an increase in range, and therefore increased opportunities in the stock.
Reviewing the Opportunity
In reviewing the action from yesterday, five clear opportunities stand out.
First off, it’s important to note that support from the previous day was $3, and resistance was $3.40.
The first clear-cut opportunity came when the stock broke above the previous day’s resistance. Notice the massive increase in volume, followed by a sharp move through $3.40. One might have gotten long the break of resistance, with a stop placed at $3.30.
After breaking out, the stock briefly pulled back and found support at previous resistance. This was a bullish signal as the resistance had now turned into support. This presented the second opportunity. A long position might have been placed here, with a stop below the breakout area. At this point, the stock had put in two higher lows, thereby confirming an uptrend and providing added confidence to the bulls.
The third higher low and opportunity came when the stock briefly dipped midday and quickly saw an increase in volume. The dip could have given buyers a quick chance to get long, as the stock remained in an uptrend.
The fourth opportunity is more advanced. However, it presents a great risk: reward. After topping out intraday, the stock sharply reversed into the first significant level of support ($3.40). After wicking below support, the stock sharply reversed with a massive increase in volume. This signaled a reversal and might have been the spot to get long for a bounce trade.
The highest five-minute volume bar came when the stock traded into critical support of $3. This level stood firm, and price action told the story. The stock couldn’t hold below this level. A long might have been placed at $3, with a stop below the low of the move, looking for a relief bounce trade into the close.
The Bottom Line
Volatility brings immense opportunity! With the increased opportunity and expanded range, it is crucial for risk management to always be at the forefront of your plan and strategy.
When you are involved in a stock, such as CEI, it is hugely beneficial to remain open-minded and ready to react to the price action. Don’t try to be a hero. Instead, respect the stock’s price action and look for the clear-cut risk: reward opportunities.