Caution on higher open - prices test 20sma, RSI tests 50

9 mar 2021

This hourly Zoom chart is an example of what I see on many stocks. A gap up open brought prices to 20sma, in this case for the first time since beginning a strong move down. You can see the white lines on price and RSI show bullish divergence, which indeed resulted in a move up, but remember divergence often leads to a bounce, not a complete trend reversal.

In this case, RSI is now around 50, we have to close the 10:30 candle, and after (for the bigger picture) we see if RSI reverses lower with price or moves higher. There are definitely good call day trades to be made in these situations, and you should use the smaller timeframes and take profits at targets. The larger trend is down right now, especially if RSI stays below 50.

Check the 10:30 candle and see if price closes over or under the 20sma to help you decide what to look for on your smaller timeframes.

9 mar 2021

Nota

RSI-14 went over 50, but price has been sideways (seen clearly on 15-30m chart). Wait until the high of day is broken for a strong trade trigger and good move up. In this example with ZM, a trade over 333.79 would indicate more movement up, and on a 30m chart you can see 351 and 358 as upside targets for profit taking.

Another method of trading is - once the range is established - to buy calls near the low end of the range and then set multiple stops below it. In this case the ideal entry would have been below 327 after price came to 20sma on 5m chart. If you thought ZM would move up you could buy calls around 327.50-328 and have exits below 327 and below low of day.

Remember these trade are against the larger trend now so it is important to check multiple timeframes for major resistance. For example ZM may not get up to 350 because on the daily chart you will see 334-336 as first resistance. Most importantly, it is okay to buy calls with a good setup, but you must have stop losses set and know your plan for the trade.