Here are some good notes from Chapter 10 of Trading Tickers.
Shorting into Daily Resistance
This is the only day 1 short setup you can safely play on a runner.
-Identify major resistance levels on the daily chart.
If there is not a key level, then it makes it easier to decide which stock to play when there are multiple runners. Weed out the bad plays by choosing the short setup with higher odds of success. Choosing stocks with strong daily resistance levels will help you weed out which stocks to play.
-Early entries of about a quarter to half size will help you scale in risking the key resistance level. Early entries that are averaged up will keep you in play, because in many cases you will see the stock "top out" before it reaches that daily resistance level. Then, once you have your position, slowly cover into the fade.
(1) Well above average volume. Very liquid that day.
(2) Risk off of a day with above average volume. How do you judge a day on the chart as major resistance? There must be major volume. That is your major resistance level at the top of the candle with above average volume.
(3) The base it is spiking from cannot be too close to the KEY resistance level. When determining this, look at the daily chart and determine THE TYPICAL RANGE. After you see the stocks typical range, you then can judge wether the stock has to spike too far to hit that key resistance level to play off of.
--If the base is too close, and the typical range tells you it could run higher than the key resistance level, then there are too high of odds that it will turn into a breakout instead.
Daily resistance does not have to be far back. It can be as close as the previous day's high. Especially if on the previous day, it closed VERY FAR off of it's high. When using the previous day's high as resistance, if it is gapping up off of it's lows and rapidly approaching the previous day's high premarket, then there is a greater risk for a squeeze at open above the previous days high.
- It is common for the risk level to break and it turn into a multi day breakout, but the odds are in your favor on the first attempt. That is the time to play off of the daily resistance level.
-This is the play that you can stay patient and catch the all day fade.