🧵 The Undercut & Rally — the setup most traders sell. Smart traders...
🧵 The Undercut & Rally — the setup most traders sell. Smart traders BUY.
1/ Stock drops below a key low. Panic. Stops hit. Shorts pile in.
Then it snaps back above.
That's the U&R. 🧵
2/ Why it works:
Prior lows = clustered stops. Price dips below → stops trigger → sellers exhausted. Shorts trapped. Their covering fuels the rally. 🚀
3/ Two entries:
▸ Same-day: undercuts low, closes back above → buy reclaim ▸ Next-day: sells off hard, gaps up next morning → buy open
Daily chart. Closing basis.
4/ Rules:
✅ Price reclaims prior low → BUY
✅ Stop: 1% below undercut wick
✅ Target: prior swing high
Tight stop. Big R:R. Size up.
5/ Volume tell:
📉 Low volume undercut = no sellers = bullish 📈 High volume undercut + next-day gap = capitulation = explosive
6/ The MAUR — Moving Average Undercut & Rally.
Stock undercuts the 10/21/50/200 MA. Reclaims it.
Same stop rule: 1% below the wick. ⚡
7/ MAUR by level:
▸ 10/21 MA → short-term shakeout, fastest snap ▸ 50 MA → mid-trend shakeout, bigger move ▸ 200 MA → macro shakeout, major bottom signal
Deeper the MA = bigger the move. 📈
8/ When a Price U&R and MAUR fire on the same candle?
Coiled spring. Highest conviction. 🎯
9/ The U&R chain — stack your edge:
MAUR → volume dry-up → pocket pivot → breakout/BGU
Earliest entry. Lowest cost basis. Biggest gains. 🦉
10/ The legends knew:
▸ O'Neil: "Shakeout +3" ▸ Wyckoff: "The Spring" ▸ Morales & Kacher: formalized the U&R
Different names. Same trap. Same rocket.
11/ When it FAILS:
Reclaim rolls back under within 1–3 days = distribution, not a shakeout. Cut. No second chances.
The setup works BECAUSE you cut fast when it doesn't. ✂️
12/ Biggest mistakes:
❌ Buying DURING the undercut (guessing) ❌ Stop too tight — wick noise kills you ❌ Trading lows nobody watches ❌ Quitting after one stop — the setup re-triggers
13/ Best context:
▸ Post-market selloff ▸ Post-earnings flush ▸ Leader retesting base low ▸ Stage 2 pullback
Stage 4 downtrend? That's not a shakeout. That's a funeral. ⚰️
14/ When multiple leaders fire U&Rs the same day indexes undercut a key low?
Market bottom signal. Days before any follow-through day.
Earliest edge you can get.
15/ Checklist:
☑ Prominent prior low OR key MA
☑ Brief undercut below
☑ Clean reclaim above
☑ Stop 1% below wick
☑ NOT Stage 4
☑ Bonus: Price U&R + MAUR together
Execute.
16/ The market rewards those who buy ugly.
The shakeout nobody had the guts to buy. 🚀
This set up is designed for Long term hold if gets it right
Low Risk, very high rewards
Working superb recently,
People shake out and that's when you enter - what an Edge.