By: Scott Redler
Lots of people ask “just what is a RedDog reversal?” Well today in Amazon (AMZN) we saw a textbook example of such a trade. The stock traded through yesterday’s low of $133.14, so any longs against that level got stopped out. Some shorts initiated positions there, looking for another down day (I call them the juice chasers), giving the stock an initial push lower.
When prices came back above that low, we saw the potential for a powerful, active trade and swing open up. The shorts were trapped and the longs were looking to get back in. The reversal trade offers great risk/reward–the stock has been beaten down $9 off of its recent high, and we get the opportunity for a long with a stop against today’s low of $131.91–just $2 risk for a potential trade back up to highs.
That is the RedDog reversal strategy–it’s a great way to trade an oversold stock (or on the flip side, an overbought stock) with defined risk/reward parameters. You can see a video explaining the RedDog reversal trade here.
