One of my recent $AMD buys was at $13.00 and it proceeded to drop for 2 weeks before I could get out with a profit. The entry was terrible but it seemed like it was mostly caused by the $SPY. There was no bad news relating to $AMD in particular. I got in at that level because this stock tends to spike right at the open and I didn’t want to miss out. After 2 weeks of waiting I sold at $13.22.
So this time I was a little more patient and waited for it to tank. The nice thing is after a big drop it usually uptrends all day and never really fades more. This is what I wanted.
By looking at the 1 minute time frame you can’t really see that there is a clear bottom where I entered and there is no reason it shouldn’t continue dropping. Remember that level 2 is mostly useless on this stock because of all the algorithms and possibly fake orders. Try watching the level 2 some time. Look for a massive buy/sell wall and then it magically disappears a second later with not enough orders going through to eat through it. The chart is way more important for this stock.
Now take a look at the 5 minute chart. This is what I based my entry off of. You can clearly see the “hammer” candle at the bottom. This is a bullish/reversal indicator. It’s not 100% and it could have continued down, but I was right in buying here this time. The problem is it consolidated for several hours before having a small spike.
Remember that hammer candles are really only relevant after a huge drop like this. I would never buy after one appears if I saw it randomly on a chart.
You can also look at the bar length of each 5m candle. They are slowly getting smaller the more it drops. A stock can only drop so much in a day before consolidating or uptrending unless there is some terrible news that has come out.
I never planned on selling the same day so I decided to stop watching it and put a GTC sell at $12.69 just in case it ran. If I had continued watching I probably would have sold in the $12.40 range. It’s not a huge gain since I only bought 170 shares (my entire E-Trade account). It’s more about practicing dip buying which I’m terrible at.
The better play was to short at the $12.62 level based on the 1m chart when it pulled back slightly and was failing to break that level/wasn’t putting in new highs. I always want to short this stock when it has these big drops, but I have no confidence in that yet. I think it’ll spike right after and it’s probably because I’m failing to look at the big picture.
I am not a registered financial adviser/broker/anything. Use this information for entertainment/informational purposes only. Any tickers mentioned are not recommendations to buy/sell/or sell short. They are used as examples only.