In bear markets, we need to understand the concept of cover pops. There will be big pops in bearish markets, and we don’t want to fall susceptible to these pops.
When the market drops hard, there will be major moves to the upside.
A cover pop is when people, such as big money, are shorting the market. If the market tries to reverse, it’s a sign of them exiting their positions to take a profit. It’s often used to reset the market and take it back to its normal pace.
As stocks start to go up, big money (who shorted) tries to exit positions. This causes buying pressure, making the stock explode. This usually happens during major moves to the downside and can last from one hour to a few days.
Another example of a cover pop is when large moves turn around and are followed by a big spike. After the pop, the stock resets and drops again.
Let’s break it down in the example below.
As traders, we want to recognize these cover pops so we avoid guessing which direction names will go next.
We hope you’ve enjoyed this breakdown on when cover pops happen, what they look like, and how we can align ourselves and apply proper logic when these moves occur.
Especially in volatile conditions, we can use this edge to better understand what’s happening in the market and take advantage of these moves.
If you’d like a rundown of how my strategy works during conditions like these check out my 4-hour Scalping Secrets Course.