As the market digests the recent upswing, there’s a storm brewing in many of the beaten down stocks.
If a stock is trading at $30, your decision as an investor will be different if you bought in at $10 then if you bought in at $100…
This “tale of two traders” creates a kind of split in the market that might clue us in to how we can expect things to play out going forward.
If you’re in the middle of a massive drawdown…
When the next big pop happens… it can be very tempting for you to unload.
The same psychology isn’t in play if you’re sitting on a 200% boom.
Let’s look at a real life example in CLOV, a former meme stock with improving structure:
CLOV Chart
For the last 6 months, your average buyer has felt the sting of being on the losing end of this trade…
How do we know?
Simple… we can just look at the AVWAP from the start of the November gap:
CLOV Chart AVWAP
Price has stayed underneath that anchor for most of the past 6 months.
But that could take a turn really soon and as it does… it could open up a spot for you to pick up shares at a very fetching price.
As soon as a stock breaks (and holds) above these key levels…
You can get filled at a better price than traders waiting for breakouts above an obvious level.
This might sound a little tricky… but let’s look at an example and you’ll see what I mean:
Here’s a chart of LMND:
LMND Chart
It’s been trading between 16 and 25 since the bleeding stopped in March.
The range highs at 30-32 are clear resistance from Jan 2022, and it lined up with the swing AVWAP from the November earnings high.
That means a lot of shares have changed hands and investors who bought at higher prices were given a chance to liquidate.
The “obvious trade” would be to wait for the breakout above 32…
But you’ll almost certainly get a better entry by anticipating.
Let’s zoom in on the chart real quick:
LMND Chart Zoom In
The arrow points to the AVWAP from the August high…
Once the stock closes above that level, there’s a very good shot it will retest the 32 range.
By that point, the breakout will be clear and the price action alone starts to attract more buyers — it becomes a self-fulfilling prophecy.
You can decrease your position size and hang on for a larger move which gives you a better risk/reward on your position.
Pretty slick eh?
These levels are like “magnets” in the market for price…
Price tends to naturally “stick” to these levels because it’s where a large volume of buyers and sellers are coming in.
If you want to know more about this powerful strategy:
>>> Click Here To Uncover The “Market Magnets” That Predict Price
