I mentioned on StockTwits that I wanted to share one of my favorite setups, called a 2nd day play (or perhaps more accurately called a 2nd day play to afternoon support setup). The setup is this: a stock is strong the previous day (preferably breaking out on the long-term chart), look for the afternoon support from Day 1, look to buy into that support on Day 2. Simple as that.

In this particular trade, AIG had been strong the prior day and was beginning to break some longer-term resistance levels. I identified the afternoon support from Day 1 to be $46.70-$46.80. This is where I wanted to look to get long on Day 2.

 

http://charts.stocktwits.net/production/original_13651498.png?1368833854
15min chart from Day 1 showing where I wanted to get long the next day:

 

The next day – Day 2 – the stock opened higher but was met with some profit taking on the open. I stayed patient. I got long some at $45.80 and some more at $45.76. I had an average cost of $45.78 with stops below 70 and 65 cents. So I was risking an average of 11-12 cents with a target of 60 cents, a 5:1 risk/reward.

By the way, a recent post of mine, “A Piker Trade” involving LULU was a 2nd day play, so you can check that out as well for another example: https://docs.google.com/document/d/1aU0ZT5q13RUqDi6m9RNEvcrjtDqH5aaTtxRcYQLr7lg/edit

 

http://charts.stocktwits.net/production/original_13651495.png?1368833842
5min chart showing entries & exits on Day 2:

(Note: right click & select View Image to make the chart larger)

Let me know if you have any questions or comments (@MarketPicker on StockTwits).

Trade Review: Second Day Play – AIG