Outside of earnings season, this technical setup is our best performing short-term strategy for hold times of 1 to 8 days. Especially on stocks around or above their 200 day moving average.
Stocks last week moved 10% to 15% higher within 2 days out of this pattern. Recent back-tests point to a greater than 80% probability of success within a week and a half with a tight 3.5% stop-loss
The reason this works so well is that you have a very good stock that is oversold, with a strong long-term trend, that is showing signs of strength both before and during trading hours after a sell-off.
The missing piece for most traders is qualifying the fundamentals and the gap between the technical entry point and the next level of resistance. If you just buy an oversold stock, its often just buying a falling knife. Do it right, and its a very high probability trade with big upside.
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