{"id":9898,"date":"2022-02-10T12:58:55","date_gmt":"2022-02-10T17:58:55","guid":{"rendered":"https:\/\/morpheustrading.com\/blog\/?p=9898"},"modified":"2022-04-06T15:04:53","modified_gmt":"2022-04-06T19:04:53","slug":"bounce-trade","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/bounce-trade\/","title":{"rendered":"How to Trade a Short-Term Bounce in an Oversold Stock"},"content":{"rendered":"\n<div class=\"wp-block-image is-style-default\"><figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/stock-bounce.jpeg\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/stock-bounce.jpeg\" alt=\"\" width=\"788\" height=\"441\" title=\"\"><\/a><\/figure><\/div>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/bounce-trade\/#After_an_ugly_stock_market_correction_beaten-down_stocks_in_sharp_downtrends_can_offer_profitable_opportunities_for_short-term_traders_Heres_a_simple_method_for_knowing_when_to_buy_with_relatively_low-risk\" >After an ugly stock market correction, beaten-down stocks in sharp downtrends can offer profitable opportunities for short-term traders. Here&#8217;s a simple method for knowing when to buy with relatively low-risk.<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/bounce-trade\/#What_to_buy_when_stocks_are_extended_to_the_downside\" >What to buy when stocks are extended to the downside?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/bounce-trade\/#The_Uglier_The_Better\" >The Uglier, The Better!<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/bounce-trade\/#When_is_the_right_time_to_buy_No_falling_knives\" >When is the right time to buy? No falling knives!<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"After_an_ugly_stock_market_correction_beaten-down_stocks_in_sharp_downtrends_can_offer_profitable_opportunities_for_short-term_traders_Heres_a_simple_method_for_knowing_when_to_buy_with_relatively_low-risk\"><\/span>After an ugly stock market correction, beaten-down stocks in sharp downtrends can offer profitable opportunities for short-term traders. Here&#8217;s a simple method for knowing when to buy with relatively low-risk.<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When overall market conditions are strong, we focus on trading explosive growth stocks that are within 20% of  their 52-week highs <em>and<\/em> with massive quarterly earnings or sales growth.<\/p>\n\n\n\n<p>Since relative strength is a major element of our <a href=\"https:\/\/morpheustrading.com\/best-swing-trading-strategy\" target=\"_blank\" rel=\"noreferrer noopener\">swing trading strategy<\/a>, we also prefer stocks with an <a href=\"https:\/\/www.investors.com\/how-to-invest\/investors-corner\/relative-strength-rating-stock-chart-analysis-helps-pick-outstanding-growth-stocks\/\" target=\"_blank\" rel=\"noreferrer noopener\">IBD Relative Strength Rating<\/a> of 90 or higher.<\/p>\n\n\n\n<p>But when the market is in correction mode (major indices below their 20 and 50-day MAs), we don&#8217;t mind protecting profits and keeping the <em><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noreferrer noopener\">Wagner Daily<\/a><\/em> portfolio mostly in cash.<\/p>\n\n\n\n<p>Additionally, we also take on a few short positions as they develop.<\/p>\n\n\n\n<p><strong>However, when the market is extended to the downside and finally begins to bounce,<em> what is our game plan? <\/em><\/strong><\/p>\n\n\n\n<p>When the stock market bounces from highly oversold levels, most beaten-down stocks are already extended well below their 20-day exponential moving averages.<\/p>\n\n\n\n<p>After a nasty plunge, the short side no longer provides a positive risk\/reward ratio for new short entries<\/p>\n\n\n\n<p>As for long positions, those that showed relative strength during the selloff tend to lag the market when it reverses higher&#8211;at least until there is a true bottom in place.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_to_buy_when_stocks_are_extended_to_the_downside\"><\/span>What to buy when stocks are extended to the downside? <span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>If you&#8217;re a more active trader and don&#8217;t mind buying off the lows, then <strong>beaten down stocks (as discussed above) are some of the <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noreferrer noopener\">best short-term trades<\/a><\/strong>&#8211;when the major indices are in bounce mode, after an ugly sell-off.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Uglier_The_Better\"><\/span>The Uglier, The Better!<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The daily charts of GoodRX ($GDRX) provide an excellent, recent example of what we look for when buying off the lows. <\/p>\n\n\n\n<p>The decline in the first chart below is nasty, as it caused all moving averages to become stacked to the downside (200-MA, 50-MA, 20-MA, 10-MA).<\/p>\n\n\n\n<p>This is the exact opposite of what we look for in 99% of the long setups we enter in our <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noreferrer noopener\">swing trading report<\/a>.<\/p>\n\n\n\n<p>However, in this case, we are only looking for a short-term pop in an oversold stock&#8211;and THIS is exactly the type of chart we are looking for!<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/220209GDRXBLOG1.png\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/220209GDRXBLOG1.png\" alt=\"\" width=\"748\" height=\"578\" title=\"\"><\/a><figcaption><em>Press chart to view full-sized image<\/em><\/figcaption><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_is_the_right_time_to_buy_No_falling_knives\"><\/span>When is the right time to buy? No falling knives!<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>First of all, we are NOT interested in catching a falling knife or bottom fishing.<\/p>\n\n\n\n<p>Rather, we wait for short-term price action to show a bit of bullish momentum first.<\/p>\n\n\n\n<p>After a sharp thrust off the lows, the <strong>first pause in the rally that shows constructive, tight action over 2-3 days <\/strong>is our signal that it may be time to buy.<\/p>\n\n\n\n<p>The price can pull back in a bit, but should not retrace too much of the last advance.<\/p>\n\n\n\n<p>It should also hold above the 10-day exponential moving average.<\/p>\n\n\n\n<p>The entry point in these type of swing trade setups can be <strong>above a prior day&#8217;s high or hourly downtrend line<\/strong>:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/220209GDRXBLOG2.png\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2021\/220209GDRXBLOG2.png\" alt=\"\" width=\"748\" height=\"578\" title=\"\"><\/a><figcaption><em>Press chart to view full-sized image<\/em><\/figcaption><\/figure><\/div>\n\n\n\n<p>Stocks have been quite volatile lately, but the Morpheus trading system has been helping Morpheus members to safely navigate the markets and stay out of trouble.<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noreferrer noopener\">Become a member now<\/a><\/strong> to receive our top nightly stock picks for profiting in both U<em>P and <\/em>DOWN markets.<\/p>\n\n\n\n<p><em>Do you also trade crypto or want to learn how? If so, <a href=\"https:\/\/morpheustrading.com\/services\/crypto-picks\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>sign up now<\/strong><\/a> for our industry-leading Morpheus Crypto service.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>After an ugly stock market correction, beaten-down stocks in sharp downtrends can offer profitable opportunities for short-term traders. Here&#8217;s a simple method for knowing when to buy with relatively low-risk. When overall market conditions are strong, we focus on trading explosive growth stocks that are within 20% of their 52-week highs and with massive quarterly [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-9898","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/9898","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=9898"}],"version-history":[{"count":5,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/9898\/revisions"}],"predecessor-version":[{"id":9914,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/9898\/revisions\/9914"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=9898"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=9898"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=9898"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}