|
Oracle
Info Tech
Analysis Staircase
Trap
Door Channeling
Gap
Down Breakout
MACD
Track
The Trap Door
| 
- Using the OracleTrader to locate Trap
Doors
A
Trap Door is a sudden,
rapid plummet, in
which you could
buy at the stock's
lowest point and
ride it back up---quickly.
A Trap Door
is a day trade,
and sometimes may
only last for a
few minutes. To
find trap doors,
simply select one
of the items in
the Trap Door popup
menu in the Daytrading
section. These are
the approximate
percentages to be
alerted---if a stock
drops swiftly by
the selected percentage,
it will sound an
alert and display
in your Alerts window.
Shorts
If
you select "short"
the reverse criteria
is used to rate
stocks---stocks
have suddenly spiked
very high. The idea
would be to short
such a stock and
hope it pulls back.
|
Every once in a while,
you will be watching a stock, perhaps it is trading "sideways" (unchanged),
or slightly down, or mildly to the upside. Then suddenly, the stock plummets
in one massive downslide, usually accompanied by a large burst of volume.
While this is not an everyday occurrence, when you do run across this phenomenon,
you struck pay dirt, because in almost every case of this out-of-nowhere plummet,
the stock bounces sharply—for windfall gains. I call this the Trap Door
(because it appears that the bottom has dropped out from under the stock).
The only real liability
of the Trap Door play is that you have to almost "accidentally"
spot it, and you have to act very, very quickly. Another way of stating this
is that the stock rebounds so quickly, that if you aren't there to see it,
you will miss the trading opportunity.
The
above illustration shows a classic Trap Door. BEBE trades normally for most
of the
session, then suddenly, it plummets in a steep spike down. Traders
jump in and drive the
stock up for an 8% gain, in minutes.
How
Low is Low?
The other difficulty
you may have with the Trap Door is to determine how low the stock has to plummet
to qualify as a play. Unfortunately, there is no definite answer (such as
"it must fall 3%" or "it must fall to half of its gain",
etc.). But it has to appear like an incredible anomaly, almost out of place,
and a sharp "spike" on the intra-day chart (see above example).
One effective method
that I find useful is to pretend I am a shareholder of the stock. As a shareholder,
if seeing the downslide would have given me cardiac arrest, then I have a
play. I am not sure any better way to describe it.
One ironclad rule that
you must observe about the Trap Door is that the stock must plummet in one
fell swoop, or at least not take longer than 1 minute to fall. This strategy
does not apply to stocks that are selling viciously and on a steep downtrend.
The Trap Door is when an otherwise normally trading stock has the floor that
it sits on fall out from under it.
Why
the Trap Door Works
The reason why the Trap
Door is effective is because a single shareholder has unloaded a relatively
massive amount of shares, and it causes the stock to spike to ridiculous depths
(if it were a larger group of sellers, the stock would exhibit entirely different
behavior such as going on a downtrend, over longer periods of time). Because
there is no additional selling pressure, the stock rebounds almost immediately.
Adding fuel to the fire, other astute traders notice the sudden weakness,
and they swoop in to drive it back to its normal trend line.
The idea is to join the
astute traders, and ride the stock back with them!
|