Situation: The Gap and Crap

For one reason or another, the stock dips after the opening bell following a price increase in postmarket-premarket trading. There may or may not be a news catalyst that drove the price up.

Strategy: Wait until the price reaches the closing price of the previous day's closing session. Buy the stock after you witness a clear pattern reversal. Patience is key. As the above photo demonstrates, there were several fakeouts on its way down, so you cannot wholly rely on Level II. You may be tempted to jump into the stock after the bulls have (temporarily) won, but looks can be deceiving. Wait for the price to drop. Don't let FOMO (fear of missing out) cause you to make a bad entry.

If the stock demonstrates that there is solid support at the previous closing day's price, buy the stock. Patiently wait for the chart pattern to reverse. In my short experience trading, I usually have not witnessed a reversal before the bounce off of the previous day's close. Waiting for the reversal is important, because it does not always hold support even if the day begins with a good news catalyst.