Want to know how to trade stocks like Roku (ROKU)? There are pretty well-defined moves a fast moving stock will make throughout the day. This video explains. (November 27, 2017)
ROKU
Roku ( NASDAQ:ROKU ); sideways consolidation here after a big monster move higher. In the forum we traded this on the way up and then sold it. If you were trading it along with us you sold it somewhere in here. Then the stock settled down. I had mentioned, “Hey man, if you are in this stock here you want to get out of this stock because it is likely going much lower.” Well, it didn’t go much lower, it just kind of drifted sideways for a while, it seemed like forever, right? Not that many days actually. Then today it ramped above Friday’s intraday high. That was important because this was like a trading box. After a big move here and then a sell-off you are looking for new support and resistance and support was right down here. You would put a stop down here, it has never been hit and resistance was right up here.
The way you trade this is, today I think the stock got an upgrade, I am not really sure, I will admit that, but it sure popped up on my radar screen first thing. When the stock went above 41.26 that was the time to buy the stock. Somebody had asked me in the forum today what I thought about Roku ( NASDAQ:ROKU ) and frankly, I was kind of lukewarm on it for a very short period of time. And then when it finally popped up here and I mentioned in the forum that, by the way, I took a position in Roku ( NASDAQ:ROKU ). Then as the stock continued higher I stayed in it, I had added somewhere along here a little bit and kept it all this way.
The reason I was able to do that is because I was looking at the volume weighted average price. That is the average price of a stock during the day based on the volume. And so you can see the stock stayed well above the volume weighted average price, which is an indication that there are buyers for the stock. Anytime the stock starts pulling back a bit buyers come in. So it enabled me to hang on to the stock throughout the day. I was watching this because I can see, and I am not doing the “Hey, golly gee this is what I did. Aren’t I great?” I am telling you this stuff because you can apply this to other stocks.
When a stock like Roku ( NASDAQ:ROKU ), this high-flyer, the one that gets everybody’s attention all at once, when a stock is up like this it is such a high profile name everybody is looking at it and talking about it and then it doesn’t fall back down; the question that you have to be asking as it goes into the last hour of trading is, are traders going to take their profits or not? You are not usually going to find a stock that does what Roku ( NASDAQ:ROKU ) did suddenly reverse in the last hour of trading. It doesn’t do that. It took a lot of money to push the stock higher, listen to me I am giving you pearls, it took a lot of money to push this stock higher; the kind of money that does not buy at 41.00, see the stock go up at 45.00 and then ditch their stock. It isn’t day trading money. This is institutional money that is buying this stock.
The question is, at what point does the institutional money kind of back away? Meaning there is less relevance there and more relevance to the day traders, to the ‘we cans’, to the guys like you and me who are just trying to make money on the movement of a stock. At what point do those traders start to become relevant? That question is answered during the last hour of trading. If the stock does not start rolling over then you have got to watch this stock, you have got to hang on to it. Because a lot of times this is exactly what you will see: The buyers that were buying the stock here, that were driving the price up, they are going to come back to finish their buying, to clean up their order. Or maybe it is the shorts, folks that were shorting this stock, although I don’t even know if it could be shorted. I tried to short it on that big, massive down day and I couldn’t get a borrow now, maybe that has changed now.
In any event, buyers start to come for the stock at the end of the day and the stock starts going parabolic just like this. But it gets better than that. This was a textbook move here, during the last, could be 15 minutes, here it was like the last 5 minutes of trading and the stock reverses. Why is that? Because a lot of folks that bought the stock, oh I know, somewhere in this area, they are taking profits. At the same time with the stock up so much you are not going to see new buying, buying that is strong enough to push the stock up even higher. In other words, that buying pressure, the demand that pushes the stock up like it did today, big, high profile move up, you are rarely going to see that move all the way through the closing bell. Typically you are going to see some type of reversal.
Now, I am flat on this stock right now but that is only because I made a mistake. I meant to close only half of my position and hang on to the rest, I won’t bore you with the details, I just kind of clicked the mouse once when I shouldn’t have done it, so I am out completely out and that is okay. Keep in mind, again, this isn’t, golly gee, I was such a good trader. This is what happens with stocks like this.
You have to watch what the institutions are doing, what they are not doing during the day. Any follow-on moves, what is happening at the end of the day, and when you see this type thing watch for the reversal. Decide on the way up, are you going to hold the stock overnight or are you going to sell? It will save you money if you make that decision before the stock starts to move lower. For me, I knew I was going to get out at $47.00 and that is exactly what I did.
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