Transcription
When stock crashes hard, most traders run away. But for seasoned traders, that panic creates a setup. Let's buy the panic. Stock selling off hard. I mean, the standard conventional here think thought process is run away as fast as you can. But what those panics create is they bring a lot of buyers in and you get a very, very consistent bounce.
Now, one thing with the panic dip buy, we're not talking huge wins here, but when it comes to the repeatability and the consistency of it, like this is one of the most consistently profitable setups. Now, I want to always want to be real with you. We don't see these as much as we used to. Used to be we'd see them all the time. Now, it's an occasional thing, couple times a week type scenario.
Now, that might you might be like, "Oh, why do I care?" But remember what I just said a minute ago. The win rate on these is through the roof. Like like you're talking crazy high percentile. I mean, no setup is 100%. But this is way way up there. So if you can be patient, wait for them to appear, know what to look for, it's just a great way to have what I call a wallet pattern. Okay? Wallet pattern. Like these aren't home run trades. You're not going to make a 100% or 80% on these, but the consistency and the reliability, why not pad the wallet? Okay.
So, what we're looking for on these is uh, you know, multi-day moves. So, we're looking at, you know, I'll just do this real quick. You know, Monday, Tuesday, Wednesday, Thursday, and this stock has just been steadily uptrending for days. Okay? This isn't a pattern we use for what I call, you know, day runners or that kind of that kind of that first big day. Um, because if they panic on the second day after the first big move, the momentum's probably over and your odds of catching that bounce pretty low. Like like it's probably just a one and done as we call it and the bounce is if it does bounce is probably going to be puny and then it'll fade back. So we want multi-day moves. Now I did 4 days. You know the minimum would probably be about 3 days. Um, we're looking for that kind of move hold and then second leg. But for this illustration, we'll say it's 4 days and then we come into, you know, Friday. So I'm going to draw the previous day's close here. So this would be Thursday's 4:00 pm close. So that stock's been, you know, gradually trending up through the week. Closes near the high. uh, it doesn't necessarily have to close at the high the previous day, but we want it at or around the high. We don't want a big panic sell off into the close. We want it to either close at the high or pretty close to it. Like maybe it runs up and then just kind of chop sideways or maybe fades a couple percent in the close. We don't want a big sell-off.
So now we come into the next day. Now, this is uh what I would call mostly a postmarket open setup. Okay, panics in pre-market, you probably want to avoid because remember in pre-market, a lot of people trade premarket these days, but there's still way less traders. We want eyeballs on this setup like like this, you know, and there's not always like hard rules. I know people like hard rules. So, I would say I wouldn't say you never trade morning panics in pre. I would just say typically I would recommend avoiding panics in pre because you're not stacking the odds in your favor and we want to stack the odds in our favor. So, we come in, you know, that 4 p.m. line. I'm simplifying match it up with the 9:30 open 4 p.m. close. Then we come through the next day. So, what you want to see is, I mean, I'm sure none of you are shocked, a morning panic, which means a massive selloff, you know, just an absolute collapse. Now, it could be 20, it could be 30, it could be 50. I have seen in the past 80% gap downs. Okay.
Now this is the key. As always, I'm sure many of you know this saying, we never want to catch a falling knife. That's where some people mess up with panic dip buys and they're buying here, here, here, and they don't wait for the turn. They're not waiting for that turn and waiting for a clear area to base their risk off of. So, what we want to see, we're not trying to guess that bottom. We're not trying to catch that falling knife. You're looking for this thing to start basing. Okay. Now, this basing period is going to vary from probably and and again, there's no hard fast rules, but kind of 5 to 15 minutes. You know, you're looking for a floor. Now, we don't want to wait hours because if it's sitting at that floor for hours, well, it's probably not going to bounce. We don't want to wait too long, okay? We just want to see where we start to see that turn.
Now, what you can do, uh, many of you are familiar with my RCT pattern, which is a parabolic move to the upside. If you think about the morning panic, you can kind of relate it to the RCT. The RCT is a more well-known pattern. Many of you guys trade them every day. It's the best pattern in pre-market, but you can kind of use the same type idea and wait for, and I'm going to revert from lines to candlesticks here. you can kind of wait for that first five minute candle. Now, use the body, not the wicks. So, but think about it. All of you should be familiar with candlesticks. What you're getting there, if you've, you know, you've got that collapse and if you have a green candle, that means that over a five minute period that candle closed higher than it opens. So, it's a good indicator of the momentum shifting. Now you can also kind of use a time dependent thing like cuz what'll happen you'll have the big candles and during the collapse and then you'll start you'll start to see the candles kind of tighten up as the stock drive grind sideways. So even if they're red candles um as long as they're really tight like real tight and then maybe you get a green one in there you get a red one in there but you're kind of getting that basing action you can do it time dependent.
Now, the more aggressive way would be kind of using what I call the inverse RCT. Okay? Since we're instead of targeting the upside, we're waiting for the first green candle in this scenario. So, if you're familiar with the RCT, we use the bottom of that candle for the risk, which the bottom of that candle is going to be right around the consolidation area, and it's probably going to be the low, right around the low of the day. So, since we use that for our risk level, you know, we never want to hold the morning panic that breaks the morning lows because next leg's coming. Like, if it can't bounce, like it perks up a little bit and then breaks that low from the morning. I mean, it's probably it might be down 80% now, but it might be down 90 or 99% soon. So, we can use the bottom of that fiveminute candle for your risk. And then those that use the RCT probably know what's coming. We use the top of that candle for the entry.
Now, this is one you got to get a little creative with risk management on. Difficult to use risk-to-reward ratios. It's kind of more of a percent type thing. I mean, every approach kind of has or every pattern kind of has different approaches. And with this one, um, you're just kind of looking, remember the wallet patterns, you know, kind of 10 to 20%. You know, again, as I mentioned, this isn't a uh, you know, a big big profit type pattern, but when we get these, I meant, you know, like I mentioned, the your win rate through the roof, like the reliability of this pattern is maybe I'm trying to, you know, think as I talk like when it comes to the patterns, this, if I had to pick one pattern with the highest consistent small small win rate. It's this I mean the you know so a lot of you that you know hate losses I should I would tell you to embrace losses. It's part of trading. It's you know it's what we do. Losing is part of trading. But if you really hate losing you'll this will make you feel good. Okay.
So what we're looking for again you get that bounce 10 to 20% nice little wallet pattern. You know maybe you're making multiple trades. You stack a few other trades on top of this and all of a sudden you got a pretty good day. But that is the big key. When you get that big panic, you can't like this is what gets people in trouble. It starts to bounce. They start looking way up here. Okay? Way where they start looking at the previous day. Like that's what gets people in trouble. Like let's say this is $2 a share and it dropped to a dollar. So it went from two to one down 50%. um instead of taking that nice 10 to 20% bounce, they start looking at yesterday and they're like, "Hey, this was two bucks yesterday, maybe, you know, I'm going to I'm going to overstay cuz they don't realize that most of these just never go green or even get close to there." Okay, so watch for that. What I would tell you, nail that quick wallet pattern, move on to the next trade because typically what happens, you get that bounce and then the sell-off continues. So instead of joining this, you take your quick win, predictable, great win rate, feels good, adds to your profits. Like let's say you got you trade a RCT in pre and you catch a big runner and then you trade a morning panic at the market open and then you trade a a big VWAP hold at the end of the day. You add all those together, you got a pretty good day. Now, the morning panic might only be, you know, 30% of your profits or 20% of your profits, but green is green. And you start stacking them up and all of a sudden instead of just a small win, you had a pretty good day.
So, that being said, my friends, um, they used to be way more way more of them. So, let me know. Did you have you traded morning panics? We used to see these all the time. You know, the market's just so bullish these days that um you just don't see those massive gap downs that you used to be. You know, the market used to be much more fear-based. Like when stocks would gap down the next day, people would just run for the exits. These days, the market's so bullish, you get the gap down, instead of selling, you just get more buying. Like, so, so that's why I love the week open red to green. Um, in another video I talked about the recopen red to green because what we get most days is that little gap down and then it goes back green. But if you can, you know, you can run a a percent decliner scan or you can just watch them. Percent decliner is a great way like you can filter and just look for stocks with good volume that are down more than 20% on the day. Like I'd say set your screener over a million shares. That's a good floor. and then down more than 20%. And most days, you know, you might get none, but you get one or two. And then you're just going to look for that turning action. Pad the wallet. Don't look for home runs. Increase your confidence and add to your daily profits. So, let me know. Do you love the morning panic? And if you like these breakdowns, if you like kind of the idea of not only seeing the pattern, but the rationale and the mindset and what goes into the pattern, definitely check out the daily income trader system. You can hit that link below. I do this kind of stuff every single trading day. Haven't missed a day in over 10 years of mentoring. Would love to work with you. [Music]