Turn on your computer any given morning, and you can find a chart with a name that’s already gone vertical.
Catching one of those early moves might seem like catching lightning in a bottle.
And the fact is, you can absolutely get run over chasing quick spikers that fade early in a session.
But there’s an approach for trading morning runners that I’ve used over and over in my career…
On Monday, two names on my small-cap watchlist came into the open looking almost identical.
Wetour Robotics Limited (NASDAQ: WETO) and TruGolf Holdings, Inc. (NASDAQ: TRUG) were both low-priced names near the top of the premarket gainers list.
Both stocks gapped up more than 20% from Friday’s close, and kept ripping higher in the first half hour of Monday’s session.
If you were watching these charts at 9:25 on Monday morning, it might have felt like a coin flip for which set up to take.
But only one of those names closed up on the day (about 200%).
The other gave back most of the move before noon.
One trade that could make your entire week. And one that gets your face ripped off before lunch.
My 4 Part Checklist For Catching Runners
Before I touch one of these small-cap morning spikers, they have to hit every checkmark on my list.
- Start From The Gainers List
I don’t go hunting for these. I open the day’s biggest gainers and work off that.
WETO and TRUG were both on my list Monday morning. The list gets me my candidates. The next three steps are what separate them.
- Check The Previous Day’s Volume
Volume on the prior session tells me the crowd already found the stock. Those buyers don’t disappear overnight.
WETO barely traded on Thursday. The next session it did 63 million shares. That tells me the crowd has arrived. (PASS)
TRUG only traded 135,000 shares that same session. (FAIL)
One of those stocks had a crowd in it going into Monday. The other one had nobody.
- Mark Yesterday’s High
Find the price where the stock topped out the session before. That’s my trigger for entry.
The buyers who got in near that price and watched it drop are still waiting to get out even.
When the stock trades back up near that level, most of them will sell. If it gets through that level those sellers are done and there’s nothing left above.
WETO topped at $12.95 on Friday and closed at $8.22
A lot of people were stuck. Monday it opened at $10.17 and took out $12.95 inside the first hour.
TRUG topped at $1.01 on Friday.
Monday it opened at $1.60, already past it.
There was nothing left to break. That’s a chase, and I skip it.
- Check VWAP
VWAP is the average price paid by everyone who has traded the stock that day.
Under VWAP, everybody holding it is losing money, and they sell into every bounce. That’s what caps these things. I stay away unless the stock is holding over VWAP on heavy volume.
WETO made its low of the day in the first minute of trading. Every buyer after that was green, so nobody had a reason to dump, and the stock kept grinding up all session.
TRUG topped at $1.82 at 10:20 and made its low of the day an hour later. Once it lost VWAP, every buyer from that morning was underwater and selling into every bounce. It never printed a new high again.
If you had run this checklist on Monday the choice between WETO and TRUG would have become obvious. (And there’s a good chance you would have gotten paid on the WETO move).
Manage Your Risk
On these types of trades my size and my stop matter more than my entry.
I start small. Usually a thousand shares, and I don’t add until the stock proves something.
These move too fast to cut a loss by hand. I’ve watched one of these drop most of a dollar in seconds, and the only people who got out had an order already sitting there.
Once it’s working I move the stop up to my entry. After that the trade can’t lose.
Then I sell the first time it breaks a higher low.
Three of those four checks are done before the bell ever rings.
If this sounds like a lot to manage, you’re not alone. There are easier ways to find setups.
Stay sharp,
Jack Kellogg
*Past performance does not indicate future results
