Prima Trades bought MGM on April 1st, 2021 at 38.58 after seeing one of our favorite patterns... the Inverse Bullish Divergence pattern. The inverse bullish divergence occurs when prices make *higher lows*, as you can see in the chart to the left, but our indicators make *lower lows*.
What this tells us is that prices are not reaching the previous lows, even though there is a greater amount of effort to bring prices lower. This is an indication that there is underlying strength and a rise in price is likely to occur. This concept can also be referred to as, 'Effort vs. Reward.'
If you think about it logically, shouldn't prices break below the previous low if there is more effort exerted in taking it there? If prices are making higher lows even after more effort is being spent, this is a major green light to go long, which is what we did here on MGM. We sold MGM on April 5th at 42.43 for a +10% gain in just four days.
However, an inverse bullish divergence was not the only component to this trade. Prima Trades only takes the highest quality trades where there must be multiple signs of confirmation. Let's list them:
- Inverse Bullish Divergence
- MGM was in an overall uptrend. (Trading with the trend/momentum)
- Prices broke over the 20 SMA, a major area of support.
- Case of Effort vs. Reward on both the MACD and Slow Stochastics indicators.
- Inverse Head and Shoulders pattern from March 22nd - April 1st.