Our stock today recently has a significant gap up from about 50 to almost 68, but now the stock is at risk of giving some of those gains back. After the gap up, the stock’s price came crashing down over the last few days testing an old support level of 58.5.

This is a key inflection point for the stock and traders of it. One the one hand, you could see the stock bounce here and go higher, somewhat of a risky trade seeing as how the stock had an almost $10 sell off after reaching 68. However, if the stock was to break down this level in a meaningful way, you could see the gap filled to the downside all the way back to 50.

Because this 58.5 level only really has one recent instance of resistance, the level of support it has become shouldn’t be looked at as super strong. The trade to watch here would be to see how price reacts to the 58.5 support level and act accordingly. There is no anticipating moves in trading, you only take what the market gives you.

Enact proper risk management and size your position for at most a 20% loss on the trade, but only at the level in focus. Otherwise you may get stopped out too soon only to see the trade then go in your direction. Price action will tell us which trade to take at this 58.5 level. If price looks like it wants to bounce and continue higher then that is the trade to take. If price action looks weak, then shorts are up.

Do not let your anticipation of a move dictate what trade you make, that is how you set yourself up for some headaches.

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