After a bullish day in the market yesterday, the next trade on our watch looks very promising. Roku (ROKU) has just broken above a key level and is currently holding just above the 75 level resistance. This is setting us up with another textbook bullish play. Does that mean we just haul off and buy calls? No… we have to look for the right opportunity.

Here, since we are just above that key level, resistance now turned support, we can think about one of our favorite trade setups, the break and retest. For those of you that don’t know what that is, a break and retest means that when a level is broken and flipped to support or resistance (opposite of whatever it was before) we often see prices come back and retest that level one more time.

If the level holds and a sweep lower is quickly bought up by the buyers, it is quite possible that some large orders were still sitting at that level. Meaning, when those orders get filled, we often see the move continue. In ROKU’s case, we have a bullish break and retest forming.

In the picture below, you will get an up close look at just what we are talking about.

As you can see, after the first time this 75 level was broken, we saw the price come back down to 75 after a stretch that brought it as high as 78 and then bounce on it almost exactly. Then, price went up to 79 the next day. If the level is tested once more without breaking lower, we can reasonably assume this is now a strong support level.

However, this doesn’t mean we buy calls in anticipation of the coming move, we have to watch price action. This will tell us more about the psychology of the traders buying and selling ROKU. If they don’t want to support the stock at 75, they will let us all know before we put on a trade.

Now, if the market decides to continue its push higher, then a rising tide may just lift this boat and that would be an added confirmation that you may want to look at buying calls. Again, the market will let you know.

As for risk management, if you were to put calls on then you would just want to make sure you have a stop loss set, either physically or mentally (I prefer physically, a stop loss only works if you let it). My generally rule of thumb for a stop loss is, your stop should be around a 20% loss on a day trade and 50% on a swing trade.

The ideal setup would to see if you get a pullback from here, closer to 75, wait to see if that level holds, and only if it does do you put on the trade with the above risk management. This is what we call a sniper entry. Give it a try, just be patient and execute!

Check out the video below for more!

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