What is the $1.80 strategy?
The $1.80 strategy is a day trading technique that aims to profit off small intraday price movements in a stock. The basic premise is to buy a stock when its price pulls back to the $1.80 level after an intraday high, and then sell once it rebounds back up. The $1.80 level is seen as a key support area where the stock is considered oversold and due for a bounce.
Day traders utilizing this strategy will watch for stocks making new intraday highs and then wait for a pullback to around $1.80 off that high. For example, if a stock trades up to a high of $2.15, the trader will watch for it to pull back and dip to the $1.80 area, at which point they will enter a long position with the expectation that it will bounce back up. The target is usually to sell somewhere above the prior intraday high.
What are the origins of the $1.80 strategy?
The $1.80 bounce strategy is attributed to day trading educator Ross Cameron, who detailed the approach in 2011. Cameron backtested the strategy and found it to be profitable when trading small cap stocks under $10 across thousands of trades.
The theory behind it is based on the psychological tendency of traders to buy at “round numbers” like $2.00, $5.00, $10.00 and sell at odd precise numbers like $1.80. The gap between the round number above and the odd precise number below represents an oversold “sweet spot” where a stock is likely to bounce from.
Cameron observed that when a stock had a big intraday move up past a round number price, it would often pull back and find support at the $1.80 level before the next round number, making it a prime area to go long for a quick bounce play.
What market conditions and stocks favor the $1.80 strategy?
– Bullish overall market – the $1.80 bounce works best when the overall market is in an uptrend. During bear markets, oversold bounces are less reliable.
– High relative volatility – the strategy thrives when trading small cap stocks with high beta and big intraday moves. Larger cap stocks tend to have smaller intraday ranges.
– Technical momentum – the stock should show strong technical momentum with the bounce occurring in the direction of the prevailing trend.
– Thinly traded float – works best with microfloat stocks under 50 million shares outstanding and relative low average trading volumes. This allows for exaggerated price movements off small imbalances in supply/demand.
– Clear intraday high/lows – clean “V” shaped patterns off the intraday highs and lows allow for easier identification of trade triggers and entries. Messy charts make the strategy harder to implement.
What are the rules for trading the $1.80 bounce strategy?
The specific rules Cameron outlined for the $1.80 day trading strategy include:
– Trade stocks under $10 in price with a float under 50 million shares
– Enter long trades at $1.80 after the stock makes a new 20-30 minute intraday high
– Place stop loss orders at $1.60 or slightly below the $1.80 entry
– Target selling for profits above the prior intraday high
– Avoid opening trades in the first and last 30 minutes of the day
– Concentrate on trades between 10am – 3pm when volume and volatility peak
– Trade pullbacks on both long and short sides (can go short below $1.80 after new low)
– Rinse and repeat the process searching for new trades all day
What are the risks and downsides of the $1.80 strategy?
While profitable in some market conditions, the $1.80 day trading strategy does have its fair share of risks and downsides to consider:
– Low reward relative to risk – target profits are often only 10-30 cents above the entry point, leading to low risk/reward ratios. Stop losses are typically 20-30 cents below entry.
– Market timing – requires entering and exiting positions at very specific points in time. Missing exact entry and exit prices can turn winners into losers quickly.
– Intraday anomalies – the intraday patterns do not always respect the $1.80 levels, leading to stopped out trades. Daily support/resistance levels change.
– Increased commissions – the high volume of trades can rack up big commission fees that eat into profits. Requires trading with low cost brokers.
– Over-optimization – the $1.80 level may be fitted to historical data and not apply going forward. Markets evolve over time.
– Difficult implementation – effectively implementing the strategy requires extensive screen time, focus, and discipline. Slippage and bid/ask spreads can be problematic.
What are some variations of the $1.80 bounce strategy?
While $1.80 is the original price level, traders have experimented with modifications and variations:
– Different support prices – using $1.50 or $2.00 or other “odd precise” numbers.
– Wider stop losses – using wider stops of 30-50 cents to allow more wiggle room and stay in trends longer.
– Scalping – taking smaller profits of 5-10 cents above entry for greater trade frequency.
– Fade other levels – trading the opposite side by shorting below pivot lows.
– Heavier large caps – trying with higher priced large cap stocks above $10.
– Different timeframes – using on 2-5 minute charts for scalping, or 15-30 minute charts for swings.
– Volume surges – entering on volume spikes back above daily average at key levels.
– Breakouts – combining with other strategies by entering breakouts then using $1.80 as trailing stop.
What types of trading setups produce the best results?
While the $1.80 strategy can be applied in many situations, these specific setups have shown the best results:
– Gap up opens – going long on pullbacks to $1.80 after a stock gaps up sharply at the open. These gaps act as magnets drawing prices higher intraday.
– High volume breakouts – entering long on a high relative volume breakout over $2.00, $5.00, or $10.00 whole number resistance. Volume confirms the power behind the move.
– Super thin floats – buying microfloat stocks under 20 million shares at $1.80 that are easy to push around and squeeze.
– Technical resistance breaks – trading the pullback after breaking above wedges, channels, moving averages, prior day highs. Validates the breakout.
– News reaction plays – heavily traded stocks reacting to positive earnings or FDA approvals, then consolidating before resuming the uptrend.
– Downside exhaustion – long trades after multiple failed attempts to move lower and heavy volume capitulation. Signals a reversal.
Does the $1.80 strategy work in current markets?
The $1.80 day trading strategy rose to prominence in the bull market conditions between 2009-2019. However, with how much the market has evolved in recent years, many traders debate whether it remains as effective today. There are arguments on both sides:
Arguments That It Still Works
– Small cap momentum persists – small caps continue seeing wild intraday swings providing plenty of opportunities.
– Day trading popularity – the rise of zero commission brokers like Robinhood have made day trading more accessible and common.
– Inefficiencies remain – even with HFT and algorithms, microfloat stocks still have pricing inefficiencies.
– Tactics evolve – old strategies like $1.80 require evolving and optimizing, but can adapt to current markets.
Arguments Questioning If It Still Works
– Changes in volatility – small caps are not as volatile on average compared to years ago.
– Competition has increased – the strategy is widely known and more traders are competing for the same trades.
– Execution has gotten harder – fast algorithms and spreads make entering at exact levels more difficult.
– Securities regulations – stricter SEC regulations on penny stocks and microcaps.
– Broader indexes dominate – volumes continue shifting from individual small caps into ETFs and indexes.
Performance data and trade examples
Stock | Entry Price | Exit Price | Gain/Loss |
---|---|---|---|
ABCD | $1.80 | $2.15 | + $0.35 |
EFGH | $1.80 | $2.05 | + $0.25 |
IJKL | $1.80 | $1.20 | – $0.60 |
This table shows example trades using the $1.80 bounce strategy on three hypothetical stocks. The first two trades were profitable with gains between $0.25 – $0.35. The third trade was stopped out for a $0.60 loss.
Below are two chart examples of successful $1.80 entry patterns:
These charts show stocks making new intraday highs, pulling back to $1.80, and then resuming the uptrend higher – capturing clean quick profits.
Conclusion
The $1.80 bounce strategy offers an insightful window into short term price action and trader psychology. When properly implemented under the right conditions, it can produce profitable results. However, like all day trading strategies, it has its limitations and risks. It likely works best today as part of a broader approach combining other tactics. With proper risk management, the $1.80 strategy can still capture small but consistent intraday gains. But it requires an adept trader with honed skills and discipline to execute it well in current markets.