I’ll start off by saying this is nothing new and Kunal Desai has written blog posts about a similar strategy involving bollinger bands. Unfortunately, I cannot find the link to it but I did see it while researching bollinger bands and stochastic RSI.
I’m subscribed to GDT on YouTube and during one of his recap videos it connected a few dots. What he has been doing lately is shorting extreme spikes expecting them to pull back enough to have a profit.
The particular stock in the video was $CPRX on 3/27. It spiked into $5.50 resistance (half dollar) then pulled back allowing for a quick 20c gain. And that’s what clicked in my head. Shorting into a whole or half dollar number - since it’s just psychology. People love to sell at or short at whole/half numbers.
I wrote a quick strategy to trade that stock then rewrote it the next day to simplify it. On Friday there were a few losses but also one giant gain that wiped out all the losers.
Let’s take a look at that nice gain on Friday. $WTW spiked very sharply near the open into a whole number. The algo shorted it at $20.98 with a stop of $21.05. It was out within the next 5 minute candle for an easy win.
The goal of this strategy is to short into a wall of resistance and get out as quickly as possible for a win. Even though this stock dumped for hours that may not be the case for each trade. I only have a small sample size at this time, so I may need to change that in the future in case this strategy really works.
- Must be at the whole/half number (within 2c on either side of it).
- The candle high it shorts needs to be outside the upper bollinger band.
- RSI must be above 70.
- Stoch RSI must be above 80.
Some tweaks I may consider:
- Whole numbers only (half numbers may not be as consistent).
- Daily resistance (could increase odds).
I’ve since added support for finding resistance on the daily chart (can be toggled) that coincides with the whole/half number. In theory that should increase its odds of having a win.
As you can see from the chart below, there was indeed resistance on the daily chart at $20.99. It’s never exactly the whole/half number and it’s more of a range like within 15c.
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.
Please remember that past performance may not be indicative of future results.