The Low Volume Hold Pattern - When To Use It

Hey guys..so if you've been following me for a while, you've probably heard me mention the low volume hold pattern - it's one of my absolute favorites to look for when playing momentum stocks.

The low vol hold pattern to me has to have three important parameters to be valid:

1) It must be a momo play for the day with good range - basically something you would look at after a morning ramp and say "oh man, I really want to short this right now."

2) It must have good volume - at least 4-5 million shares+ traded on the day preferably - enough that when the pattern does present itself - it is easily recognizable like on LEDS today, which you can see below. 

3) It's got to be a (relatively) low floater, the lower the better obviously (preferably <10M) In short...don't go trying to apply this pattern to FB or VRX or AAPL or something along those lines - it won't work. 

SO..basically what it is, is a low float stock with momentum that absolutely rips for a period of time, goes parabolic & then hangs out up near the top holding a lot of the gains. Then come 10:30-11 ocklock, typically the volume starts to fade off into lull time, and price action should follow suit. If there is no volume coming in relative to the morning (see LEDS below)...yet price action is just a nice slow orderly walk down, or better yet just trading sideways, whats that telling you? If there were sellers present, this thing should be washing out and fading on such low volume as there *should* be no buyers there to bid it back up, but it's not. 

So that area I have highlighted below on LEDS, we get the little orderly walk down on basically nonexistent volume, and I'm reading one thing from that "low volume & holding" price action: This is retail shorts piling in here, and someone on the other side "supporting" it just enough to make it look weak, but not have it break down to the point where longs start to panic. So retail shorts continue to show up from 11:30-12 there, just being absorbed. "They" are "trapping" is the idea. Until eventually it doesn't break down, then everybody starts to say "uhh..now what" and it's the snowball effect from there and off to the races once a few shorts begin to panic. They thin up the ask, a couple covers on a low float name send this thing up .15-.20-.30c pretty quick, more shorts panic, smart momentum buyers that were lurking recognize "squeeze time" and come in to add even more buying pressure, and then you see things like this today at noon on LEDS, a quick move from 8 to 9 before you can blink. The move is even more poweful when a VWAP hold is involved. Preferably look for this type of pattern to take place above VWAP so you know the early longs aren't too pressured yet either.  

That is my interpretation of what happened today, I know it's easy to say in hindsight, but thats just some of the logic behind the "low vol hold" long setup for this particular case. These low float momo runners are FILLED with manipulation and nonsense, with their sniper scope sitting dead red on impatient, inexperienced retail shorts. You don't want to know how many people blew up their accounts on this today, it would make you sick. Recognize when there's a huge drop in volume relative to the prior run up volume, and take note when the price is trading sideways or "laboring" to go lower, when it should be fading. It's a sign to be on high alert if short & probably cover, or sit back and lurk for the beginning stages of the "squeeze" confirmation and then jump in long to catch the squeeze up - which is the way I play them.

Always try to paint a story of what you think happened/is happening during a trade. Get in the habit of trying to analyze price action at the next sub level below face value. If you want to be long, think about where you'd start to get worried as a short if the name isn't breaking down. If you want to be short..think about if you were already short, where would you panic & stop out? Target that for entry. Things of that nature. Superior traders do not have superior technical trading knowledge. They are superior critical thinkers in times when everyone else is acting on emotion,  and they are taking advantage of it. 

Hope this helps. Heres some links to my past tweets where the low vol hold setup has showed up recently on some nice momo runners.

https://twitter.com/DGTrading101/status/738783702965223424

https://twitter.com/DGTrading101/status/738056330842374144

https://twitter.com/DGTrading101/status/711925280747753473

https://twitter.com/DGTrading101/status/709568528316235777

https://twitter.com/DGTrading101/status/707969772248539136

https://twitter.com/DGTrading101/status/707366728821510145


Have a good night guys, catch you in the morning.

Dante