As a day trader I am always looking for stocks that move in an extreme way either up or down. Large expanded moves in a quick fashion build little support or resistance on that move and can be played for a retracement.
Stock Play
For example, L-3 Communications (LLL) had an explosive move up on October 10, 2014. It moved up very quickly from $107.00 to $122.00 in about one hour. Since I wasn’t long I started to hunt for a short entry to get the retracement short. I needed an entry point to get me short to know that it was done moving up.
Monitoring The Chart
I begin to stalk it short on the five minute chart using candlesticks. I wanted to see some blow off top where it would push hard to new highs and then run out of gas. At about 3:15 pm ET, it produced a very nice topping tail candlestick on the five-minute chart. I got short at $120.49 and placed a hard stop at $122.75 just slightly higher than the previous high of the day. The stock came down nice for the next 45 minutes and tagged the VWAP (volume weighted average price) at $115.00 where I covered with a gain of $5.49. On set-ups like this I have found that the VWAP seems to be a real nice target area which offers high odds of finding retracement.
Trading Tip
Keep a close eye on the VWAP. It is a great benchmark when stocks have an explosive move up or down.
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