With all the strength in the energy sector, today’s trade breakdown is an interesting one. Despite this strength, Enphase (ENPH) has diverged from this path and as you can see, struggled over the past month or so.

The recent rally in the overall market may have caused some of these energy names to lose some steam as investors found their way back into other sectors. However, after declining as much as it has, the stock is now approaching a key price level.

Traders can use these historic support and resistance levels to determine what would be their highest probability trade. For ENPH, this $220 level can provide a possible bounce spot. Oftentimes, when stocks declines to a historically significant level, like this stock has, buyers could possibly step in to test puts for a little bit of a relief bounce. Now, this doesn’t mean that the shorter term trend has flipped from bearish to bullish, but stocks do not just rise or fall in a straight line.

After these large increases or decreases in price, a stock will often retest. Meaning it will move in the opposite direction of the trend briefly before continuing on the established trend. These retest can provide traders with a scalping opportunity and play what the market is giving them.

It is important that when you attempt to play these retests that you have your risk defined and stick to your risk management, in case of a fake out move.

Learn how to trade setups just like this by becoming a part of The Profit Machine community. Lay a good foundation to your trading by focusing on learning all you can, so that you may one day be trading your own system. Creating your own system of trading can be a long and, at times, a very frustrating journey.

Cut down on the time and frustration by joining our growing team of traders. I will show you my system for options trading, which you can build upon to create your own system, one that suits you and your preferred style of trading.

I look forward to trading with you…

Good Luck!

Christian Tharp, CMT