Trader Identifies ‘True Low’ For Bullish Stock Plays

2022-03-23

When the market tilts downward, Simpler's traders work to find low-hanging fruit offering trade potential.

This “true low” strategy helps keep traders active as market volatility continues its up-and-down movement. After some positive upside moves last week, the stock market is down again through mid-week.

(Check out the free video, above, for insight into trading this changing market.)

Adjust to real world with ‘true low’ stock plays

This year has proven eventful for the market with inflation rising, supply chain troubles, and unprecedented conflict in Eastern Europe.

So where do traders look for trading opportunities in a market adjusting daily to real-world situations?

The Simpler Trading team often turns to select areas within the overall market, like the Nasdaq index and its technology stocks. Even as the Nasdaq has been hitting hard lows in this market, Simpler’s traders have kept an eye on Apple (AAPL) on the weekly time frame

In the same fashion as the market, AAPL has been experiencing selloffs. In recent weeks, this brought the technology stock close to its weekly support level, shifting downward. 

‘True low’ helps identify best buy-in price

When charting market movement, like in AAPL, Simpler’s traders look for the “true-low signal.” This is the red triangle indicated on charts showing the true low – or best buy-in price.

Before all this recent downward movement, the last time Apple saw this true-low signal was in October 2021 on the weekly time frame.

This key chart signal represents a way for traders to identify the “discount price” of a stock. This signal indicates the next bottom in price before there is a drive to the upside – a possible bullish trend higher of the stock.

For the AAPL example, the true low point in October occurred during a pullback and was followed by a run higher into the end of the year. Even back in March 2021, the signal also printed an overall, short-term runup as well as the longer-term bullish trend. Prior to that, traders had not seen a true low print since 2019 (which, looking back, served as an entry for a longer-term bullish move).

Even with the current pullback, there are still valid entry points to be found as the stock still hasn’t dropped back down to the previous low price level.

Market sets up for trading patterns

Simpler’s traders are seeing this stock (AAPL example) as setting up for this potential pattern.

Diving further into the technicals, or chart analysis, the Bollinger bands have shown signs of consolidating along with the price into a bullish trend even as market uncertainty remains a factor. Of course, a sudden news event or market sentiment could flip this momentum.

Be mindful of the risk with this or any setup.

Another trade consideration is the potential for an out-of-the-money long call into May or June – past the next AAPL earnings announcement. This is a setup that could be inexpensive depending on the capital risk involved. This setup also gives traders time to sit through expected chop in a volatile market.

As long as support holds, the discount buy holds potential to open up buying opportunities for traders who allow the stock price to play back up to resistance levels or higher.

Often with these moves, price movement will swing back into the prior highs, if not exceed them. This occurred recently, where traders who held on through the squeeze also got the long-term bullish sentiment that followed. This is where trading psychology, and mettle, comes into play.

The idea in this example is that traders who hold to at least test the prior highs could see some bullish movement for their target strike price even if it takes holding the trade into June to allow time for potential profit to develop.

During this past October, a similar move happened pretty quickly and put traders “in the money” well before the longer time frame transpired. Simpler’s traders are looking to allow plenty of time for trades like this to develop to the upside in an uncertain market.

Chart indicator identifies trade potential

Part of working through trade setups like this example is to identify opportune times to take any potential profits.

Traders often see dips that occur in the market, but without a chart indicator to assist them, how will they know whether they are entering a trade at the best available price?

Having a signal that identifies the true-low price, or discount price, helps prevent traders from buying a stock too early.

Simpler’s traders seize the opportunity for a profit when the chart signals reveal a setup unfolding to their advantage. Trades like these examples can continue as long as the price can maintain support, the Bollinger bands don’t start to flare open, and traders see the pink triangle print on the True Low Indicator (part of the trading toolbox for Simpler’s traders).

When traders see similar chart signals unfold, the stock could be setting up for a long-term buy opportunity (like the AAPL example) to at least play into resistance or continue into the next run in the overall bullish trend.

Discovering trade setups like these examples is possible because the team at Simpler Trading relies on charts and technical signals. These are the important trading tools that allow them to identify and plan  setups to maximize their trades.