I received an email from a reader, Christy that wanted me to clarify what I meant by not buying dips, but buying intraday strength. The best way is through an example of day trades in AEM – Agnico Eagle-Mines Ltd., and AUY – Yamana Gold Inc. this morning.
I stated my plan for gold stocks yesterday saying, “Two scenarios of buying strength could include, trading higher out of an intraday base, or breaking a 5-minute high after initially gapping lower.” So I was ready for a scenario to play out. I had a plan.
AEM and AUY gapped lower. I was watching for this. My next move was to look for a long side trading pattern.
AEM bounced quick, leaving a long tail. Bulls were showing buying power The 5-minute chart provided risk of .55. R = 1. I bought over the 5-minute high. Since this was a day trade, 1/2 would be sold at 1R, and the rest at 2R, or at a trail bar stop loss point. This was planned before taking the trade. Yes. It all happens fairly fast.
Shares of AUY put in a decent tail too. It had a long candlestick though. Using a pullback trading pattern was safer than waiting for the 5-minute high on this low priced stock. That occurred with a sweet reward to risk entry point. The 4th bar was .17 long. I made that = 1R. The 5th stick was the entry point. Same thing as AEM. Just looking for a day trade. 1/2 sold at 1R, and the rest sold with a trail stop, or at 2R.
Now look at a daily chart of AEM. It’s retraced over 100% of the move from last month. It’s lost the 200 dma, and has probably shook out a few longs from the last few weeks who were ready for a break higher. . Here’s where I wouldn’t be buying dips, and averaging in. I would buy a higher high if the strength is there, but want those trading patterns to confirm entries for me first. Have a plan. Are you day trading? Do you define your targets? Do you have a stop loss… etc.?
