The market is getting rocked in the pre-market this morning… and it’s all related trade. The peso is crashing after President Trump announced that he might impose tariffs on Mexico. And to make matters worse…
China has come out and said it plans a “major” retaliation… and potentially blacklist thousands of U.S. firms…
Do you want to know how I’m going to be playing it?
Trading momentum stocks.
(I eat..sleep…trade…so you don’t have to. Do yourself a favor and grab a copy of my eBook, The Penny Stock Playbook)
And you know what else?
If you trade stocks with catalysts (like I do)…especially small-caps… then you can expect these stocks to trade utterly opposite of the market.
For example, the market was mostly flat yesterday… but several stocks had explosive moves… and they were all small and micro-caps.
Now, here’s the really cool part.
Not only do these stocks tend to move more than any other stocks in the market… but they are also low priced… which is great if you a small trading account.
So let’s get this straight…
Most of the market is concerned about a trade war and are reacting to every headline they see pertaining to it.
However, you can avoid that altogether.
In fact, I’ll show you that if you focus on catalysts, patterns, and value… you can make money in a down market.
I was able to profit yesterday in WKHS, using one of my go-to setups, the Fibonacci retracement trade. This is a stock I’ve been trading a lot lately, and I pattern that has made me a fortune throughout my trading career.
It’s Fibonacci Friday… you know that means.
I’m going to be going a Fibonacci retracement trade.
Now, I also call this the rest and retest pattern.
You see, with momentum stocks… they move quick. Generally, we see a strong runup… followed by a pullback… thereafter, we see the stock run up again.
This type of price action is not only common with momentum stocks… but it also makes sense.
Think about it this way, if you’re running, chances are you can’t run all out for an extended period of time without taking a break… but once you stop and take a rest, you’ll continue to run after.
With stocks, it’s the same. You see, there are buyers and sellers. Buyers who bought ahead of the momentum will start to take profits, causing a bit of selling pressure… not only that, there will probably be short sellers, betting against the stock.
However, when momentum stocks pull back, they ultimately pull back to a key level, where buyers are willing to purchase the stock. In turn, this causes prices to be bid up… pushing the stock higher.
Well, this is actually my bread-and-butter.
I’m able to spot these levels easily… but remember, I’m also pairing this pattern with catalysts.
For example, Workhorse Group (WKHS) was a momentum that I recently traded.
Fibonacci Friday Case Study
If you don’t already know, the key levels I’m really looking at are the 50% and 61.8% Fibonacci levels.
Because those are areas of value.
Let me show you.
Check out this daily chart in WKHS.
You see that big white candle where the stock exploded?
Well, the POTUS tweeted and sent the stock soaring that day…
Now, the market had to digest this news… but there are still looming catalysts of the GM plant and U.S. postal contract, which could send the stock higher.
Remember, if you’re just starting out… momentum stocks are very risky… they can go down just as fast as they can go up.
Notice how the stock started to pull back and catch a bounce?
Well, that’s right around a key Fibonacci retracement level. Check out the daily chart on WKHS below.
Now, I bought shares at $1.51, right around that 61.8% retracement level. I was anticipating the stock would get back above that level ($1.55) and had the potential to run to the 50% retracement, around $1.85 – $1.88.
Because I’ve seen this time and time again.
The area where I bought the stock is considered an area of value because there is demand there…
Well, I actually let my clients know when I got into trade… and I reminded them that it was on the watchlist that I send out too.
Well, here’s what the stock did the next trading day after I got in.
Just as I suspected… the stock broke back above that key Fibonacci retracement level at 61.8%.
Well, I actually decided to add to my position, and I alerted clients about it.
I decided to add some more to the position the following day.
Now, yesterday, WKHS finally broke $1.80 and hit $1.84… I was up nearly 20%, but the stock moved quick and I only sold for a $2,000 profit.
Again, when you’re trading momentum stocks… you have to be quick and stick to your rules. For example, I wanted to hit my goal of 20%… and I planned to protect my win if the stock pulled back… so I’m not mad about the trade at all, it’s all part of the game.
Now, if you want to learn more about my trading patterns… and how I locked in $2K in WKHS, all while the market was selling off, click here to get started.