Stock Trading Tip – Entry Is Everything

Posted by on April 4, 2013 9:30 PM
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Categories: Lessons


This is one of those really great tips for trading in the stock market that you going to love. I noticed something wrong that I have been doing over the last few weeks. I have been taking really poor entries lately and it has cost me.

It’s frustrating when I see Jason Bond hitting small winners but for me they are small losers. It is happening because I have been chasing stocks and buying up near the high of the day when I should be doing the exact opposite: buying near the low of day.

Stock Trading Tips For Beginners

This might just be one of the best stock trading tips you will ever get: how to better time your entry and buy a stock near the low of day. Folks I’m serious. A famous trader once said, “I realize my gains on my entry, not my exit.” Timing your entry better can be the difference between being a winner at stock trading versus being a loser. It really is that important.

A “flush” will often happen on the charts when a stock has bottomed for the day. It also happens on the S&P 500 when it has hit a low for the day:

The long lower shadow or tail forms when the stock or market drops big and forms a huge red candle sell off. However, seconds later a massive amount of buying or short covering takes place which drives the red candle back up higher. When you watch it in real time, it resembles the handle on a toilet being pushed down and then popping back up when it is flushed. The longer the lower candle is, the better the signal for the reversal move.

You will know a flush when you experience it. It is a rather violent move. The stock’s volatility explodes higher as the stock dumps and then almost immediately starts moving back up the candlestick forming a long lower shadow. As soon as you see it, take your long entry.

I know some professional traders who trade at home for a living who only enter a position on a flush. They may watch a stock for days as they patiently wait for a flush entry. It is important to note that higher volume stocks flush better than thinly traded stocks.

Successful Stock Traders

Stocks that form long lower shadows and flush near market open are often stocks that have a gap down open. For a list of stocks that have a gap down open, you can go to the Barchart Gap Down stocks page here. The reason gap down stocks often flush is that the market overreacts on the downside so that shorts cover and bottom feeders come into the stock. Check out this gap down stock that flushed at market open:

Many successful stock traders have screeners that scan for gap down open stocks. They will then watch the charts of these gap down open stocks and wait patiently for a flush to form. This is a variation of a scalp day trading strategy. You can also use the flush candlestick pattern on the daily charts for swing trading.

Screening For Stock Flushes

Another way to screen for stock flushes is, on Finviz, add long lower candlestick shadow to the stock screener. Not every stock flush has a long lower shadow, but many do. On Finviz, for “Candlestick”, select “Long Lower Shadow” (click on the image below to enlarge):

Frequently Asked Questions about Stock Trading Tip – Entry Is Everything

What are gap down stocks?

Gap down stocks are stocks that have a gap lower between prices on a chart with no trading occurring in between.

What are gap up stocks?

Gap up stocks are stocks that have a gap higher between prices on a chart with no trading occurring in between.

What causes a stock to gap?

The most common reason that a stock gaps either up or down is from an earnings report that is released after the stock market has closed for the day. If the earnings were better than expected, many traders will place buy orders for the next day. This could cause the opening price to be higher than the previous day’s close. If the earnings were lower than expected, current holders of the stock may place sell orders for the next day. This could cause the opening price to be lower than the previous day’s close.

Any significant catalyst change or external news event could cause a stock to gap up or down.

Gaps usually market a sudden change in investor sentiment.

How to trade gap down stocks.

There are several ways to trade gap down stocks. One of the more popular methods is called the 5-7 Day Gap Down Method.

The 5-7 Day Gap Down Method uses the price gap with the stochastic indicator.

When a stock gaps down, you wait 5 to 7 days after the gap down before taking a long entry. This gives the stochastic a chance to hit a nice oversold level.

DayTraderRockStar posted the excellent video below called The School of Stock: How to Trade a Gap Down 5-7 Day Method.

Tradewins1 posted the excellent video below called George Angell: Three Tips for Trading Gaps and Trends.

In the video lesson below, I talk about what a “flush” is and how it “feels” when you experience one in live trading. Buying when a stock flushes is one of the best ways to time your entry near the low of day. Next, you’ll get to hear a Jason Bond Focus Group meeting that Jason does a few times each month. Enjoy my friends.

IF YOU THINK THIS LESSON WAS GOOD, YOU OUGHT TO SEE WHAT ELSE JASON BOND (JB) HAS TO OFFER! CLICK HERE TO CHECK OUT HIS SERVICE! HE’S ON A HOT STREAK RIGHT NOW! DON’T YOU WANT TO BE ON A HOT STREAK TOO?

IF YOU THINK THIS LESSON WAS GOOD, YOU OUGHT TO SEE WHAT ELSE JASON BOND (JB) HAS TO OFFER! CLICK HERE TO CHECK OUT HIS SERVICE! HE’S ON A HOT STREAK RIGHT NOW! DON’T YOU WANT TO BE ON A HOT STREAK TOO?