When I look to buy a stock long that has been oversold, I am looking mainly for prior price support (looking left). The prior price support gives me an area for the stock to potentially bounce. I always look left before I take the trade because I need to see some price support that will provide a base for the stock to either stall or hopefully bounce upward.
The Trade
Atlas Pipeline (APL) sold off for two days from $34.85 to $27.50 and if you look at the weekly chart above you will see demand level exists at $27.50. I set a trigger to take the trade long at $28.00 and placed a stop under the $27.50 area. The trade triggered long at $28.00 and rose nicely in one day to $29.62.
So far the trade has gained over $1.30 and I will continue to trail the stock in the money until it forces me out or hits my target at $32.00.
The Tip
The key to successfully trading bounces is to find exhaustion sell-offs into prior price support. Price support to the left gives you an edge because you’re not blindly trying to pick bottoms; rather you are objective.
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