A Trader's Manual These are termed as rebound rallies when there are steep price increases when markets go on a significant decline. Rebound rallies come in such entry opportunity for traders
but one must beware of their implications
How to Identify Possible Rebound Candidates
Technical Analysis
Use indicators like RSI and MACD to identify conditions of increased oversold
Fundamental Analysis
Understand all the underlying reasons as to why the security fell. Did panic arise from temporary sources, or is there something deeper
News Flow
Follow news and sentiment to gauge the reaction of the market and important possible catalysts for the recovery
DYOR Conduct your research well Understand the Market Analyze the global trends Conduct fundamentals of the company Review financial statements, Competition, and Management
Risk Management
Stop loss orders prevent potential losses and define clear entry and exit strategies. Rebound rallies can be very short-lived. Now patience and discipline must prevail in the dealings of such traders, so they do not act hastily with a reaction to the velocity of trading activity. Thorough research and sound risk management will lead many traders to profit out of these opportunities without putting themselves at a big risk
Disclaimer: This article is only for informational purposes and does not constitute financial advice