On Monday, I tweeted about buying the dip for $SQ and how I bought the first dip but missed out on the second. That got me thinking…
“Is there a way to maximize the entry point during early morning dips?” 🤔
Then I remembered how GP always reiterates that the The Money Flow system is fractal. Meaning it works whether you trade a daily chart, hourly, weekly, monthly, etc… So I took a look at Monday’s chart for $SQ on a 5min interval and found some very interesting observations to support my theory that you can in fact use technical analysis to optimize your entry…
Above, you’ll notice that TMF works perfectly here for helping us better our entry point and take advantage of the dip. First, price moves below the 20 SMA at around 9:55am EST. Then five minutes later, the 5 EMA crosses below the 20 SMA signaling a Stage 4 decline — which tells us to hold off because price is going to keep dropping.
Then around 12:30pm EST, price moves above the 20 SMA and five minutes later the 5 EMA crosses above the 20 SMA signaling a Stage 2 breakout— which tells us to get on board because price is on the rise!
Now, to further maximize this dip, we can use other indicators to buy the bottom…
Look at the chart below, notice how the RSI drops below 30, signaling that its oversold. Stocks don’t usually stay below 30 RSI for long so we can infer that it’s going to bounce back up soon. By also looking at the MACD Histogram, we can see that the momentum reverses and begins moving back upward, confirming our suspicions about the bottom. Add on top of this that the Elder Impulse colors of the bars perfectly match the trend that price is in — RED as price is in a downtrend, BLUE as it finds the bottom and consolidates, and then GREEN as it switches to an uptrend.
In conclusion, I think using TMF system to optimize your entry during a dip is totally feasible. In this case study of $SQ, this strategy could’ve saved you around $5/share by getting in at a better price than the opening or closing.
This probably isn’t something I’ll use for every trade, but if there’s a stock setup I like and the price drops at the opening, it could be worth playing with to help get in at the a better price. (Another theory is the opposite could work for a stock that has an early morning spike to avoid entering at a higher price).
Trade long and prosper!
This post was generously powered by the TRIPLE shot espresso from u/BLUE712cats, thanks John!!! ☕☕☕