Strategy Description: This can be a great way to pick up a longer term swing position in a stock you want to hold... But the essence of this play is simply a short term bounce. Usually the stock will be oversold for a reason, and in this case the relative weakness to the market and other high beta stocks is a sign that definitely should establish a longer term position (so entry methods are similar but overall targets and game plan is different).
The setup is as follows (reverse of a parabolic on daily), a stock within down-trend accelerates. The acceleration should be evident when looking at the ATR combined with the volume. The more down days in a row the better. Idea scenario is a exhaustion gap down, and use the opening lows to set risk.
Execution: Need to be very careful to only start into a position, and only add once risk is defined. Despite the gap down, should be prepared for an opening washout of around 1ATR - which would then be considered the final flush-out for a decent rebound. Given the massive oversold nature of the stock should be expecting a sharp rally, but get out the moment the rally fails. This can be done by keeping 1/3 and trailing the stop-loss aggressively.
Notice in particular how the rally was completely faded off - yet this was the sharpest rally of all the high betas (the other high betas didn't all reverse).
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