$PLPL (Plandai Biotechnology) is an OTC stock currently trading under $1.00. Like most otc stocks, it is not a company I would ever recommend as an 'investment'. But when the right setups present themselves, stocks like these can make great short term trades. On Monday 21 April, $PLPL caught my attention. It had a nice spike that morning and was breaking out over its highs in the late afternoon. As seen on the screenshot below.
I took a screenshot on my phone as I was away from my computer when the breakout occurred. This type of breakouts can be great buying opportunities. I immediately picked up some shares for a long position overnight right before the close. As you can see the stock closed right at its highs - $0.79. This was a near perfect scenario for me. One of the common questions new traders ask me is, "How do you know that a stock would gap up/ spike the next morning?". There is no 100% correct answer to this question as I have no crystal-ball. But my answer is usually this - " if the stock market closed at 4.15pm EST instead of 4.00pm EST, do you think the stock would trade higher or lower? " Because in theory, the next 15 minutes after the market close is the first 15 minutes of the next trading day - especially considering most OTC's do not trade after hours. Now for a stock like $PLPL which was breaking out to new highs and making higher 'lows' - odds are the stock would trade higher if it had this hypothetical 'extra 15 mins'. You can also see the volume spike near the eod. I would always recommend caution when holding OTC stocks overnight - especially weed stocks. SEC halts have become quite common. Now I'll show you the chart for $PLPL the next morning.
I forgot to take a screenshot of the chart earlier on 22/04, so that's why 23/04 is included in the picture above. But I took the long position on 21/04 so 22/04 (the left side of the chart) - was the next morning I sold. As you can see on the chart, $PLPL had a nice continuation the next morning. It gapped up and spiked all the way to $0.87 before falling all the way back down. I sold at around $0.86, a nearly 10% gain in just a few minutes. How did I know the stock would tank right after it hit $0.87? The truth is I didn't know that for sure. But I noticed a wall of sellers start to 'stack up' on the Level 2, so I decided to play it safe and sold. Remember the goal for the trade was to play it for a gapper / morning spike. So keeping those rules in mind - I really had no reason to hold it for much longer than a half hour or so, unless the Level 2 gave me reason to believe the stock could keep going. And in this case, it gave me no such indication. Hopefully this helps you guys, as I've been getting a lot of questions concerning Gap plays. Special thanks to
@cactustrading and
@kroyrunner89. They are 'must-follow' traders and reading their thoughts on twitter has really improved my trading. As always do your dd, and always keep learning. Good luck seeking alpha.
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