As we pointed out on our Candlestick Webinar a couple weeks back, I AM A BIG FAN OF CANDLES! Especially when I can find something with a high probability trade. Shooting stars have about a 59% probability of moving down. That coupled with volume that is almost 4x normal makes for a trade with a very good chance of heading down over the next few days. It is crucial that we wait for the trade to set up and hit our entry price before we jump on the trade! Many followers will just blindly short simply because we are looking for price to drop. Here is how the trade sets up:

Short below $18
Stop at $18.53
Target at $16.43

The stop is very tight at $0.53. I would like it to be larger to accommodate the ATR, but then it would conflict with our price target. I am looking for this stock to close that gap from a few days ago, and that only offers about $1.60 worth of profit potential. So we have to adjust!

Happy Trading!

Again JBHT makes the scan today! I originally used this as the PowerPick of the Day! on July 12th. That particular day, we had a nice shooting star formation. However, that did not work, and price rallied higher without hitting our short entry price. Today JBHT displayed a Bearish engulfing pattern (red arrow). On the chart above, you can not see the engulfing because www.freestockcharts.com only uses BATS data, and not the entire market. So it looks a little weird. Here is how it looks on TradeStation, a DAT trading platform which uses all market data to draw its charts:

We are going to trade JBHT short once the low of today (July 21st) is broken. That is almost the same level as the base of the shooting star from 2 weeks ago!

Here is how the trade sets up:

Short below $34.24
Stop at $34.91
Target $32.11

Happy Trading!

Last friday I was looking at a nice short term trade on AT&T that started off well! While that trade should remain open until we hit the base line around $24, there is another monster trade looming around the corner. For more information on the overall pattern, look at the last PowerPick of the Day. This time we are looking for the big move which will only happen once we break below the baseline. If that happens, here is how the trade sets up:

Short below $24.00
Stop $25.10
Target $19.38

Happy Trading!

This is a trade that has a short term and a long term angle. For today, we will look at the short term trade. T has bounced back to the down trend line (in white) in a very short period of time, proving a strong level of support at $24. However at current levels, the security has struggled to move higher. The downtrend line and the 50 SMA appear to be acting as strong resistance. This is characteristic of a descending triangle. As you can see, we are near the tail end of a large descending triangle! Here is how the trade sets up:

Short below $24.80
Stop at $25.05
Target at $24.05

I’ll admit, this is not a huge profit potential trade, only $0.75 per share. But it could be the beginning of something very big. As we start to approach the baseline of the triangle, I will illustrate the second trade possibility, which has a much greater reward. Until then, Happy Trading!

I often am asked: “If your a successful trader, then why do you teach?!”. Today is a great example why! One of the perks of my job is that I get to work with great traders from around the world. This interaction helps enforce my discipline, keeps me fresh with current topics and trends, as well as gives me more eyeballs to see the market through!  Ryan Watkins, one of the top instructors at Online Trading Academy, sent me this gem this afternoon. I run a bunch of scans myself, but this one did not make it onto my lists. So I credit Ryan with finding it!

LRCX had a shooting star form today (no, it is not a perfect star, the lower tail is to long), on elevated volume. That alone would make for a high probability trade! However, the odds increase when we look at other factors like Supply and Demand. Over the last few months, we have seen LRCX smash its head into that overhead supply level right around the 43.50 level. I looked at this trade from several angles and found 2 solid trades. Here is how they set up:

Trade 1 -
Short Below $41.70
Stop at $43.25
Target at $37.05
This trade is using the lower black line as the price objective. We have seen price bounce off of that level recently, making it a logical area to take profit. I also left in a nice yellow trend line where I expect LRCX to find a little support. On the negative side, this trade gives you a stop loss of $1.55. That is a little tight considering that the daily ATR is $1.62. Ideally, I would like to see it more than that…. which brings us to option 2

Trade 2 -
Short Below $41.70
Stop at $43.58
Target at $36.05
This trade has a little more risk due to the larger stop loss. However the stop loss, $1.88, is more than the ATR. This will allow the security to move with less chance of being stopped out. Either way you slice it, things look good for LRCX to the downside!

Happy Trading!

I had a real hard time picking the PowerPick today! One of the rules that I have in my trading plan says that I can not trade drug stocks. This is definitely on the borderline. I definately like the impulse surge that we have seen over the last few days. Unfortunately volume is not climactic. I wish that we did have more of a volume blowout, but it is what it is.

Here is how the trade sets up:

Short below $65.61
Stop Market $67.61
Target at $57.50

Normally I would have put a stop loss that is just above the high of today, but I wanted to make sure that I incorporated the ATR of $1.80. Therefore the stop is $2. This may seem large, but you can accommodate for that with share size. Happy Trading!

Fridays slowing market momentum leads me to believe that we could see another sell off in the coming days. So I ran a filter that would pull up the most recent Shooting Star Patterns. This Shooting star on TWC is a pretty good one! Notice the overhead resistance that is currently being displayed at the $56 mark. The last 2 times that price hit that it bounced back down to the lower support level. This trade is pretty simple, and has a decent risk/reward ratio.

Here is how the trades sets up:

Short below $55.34
Stop at $56.44
Target at $52.06

The only real problem I see with this trade is the low volume. About HALF of normal. This makes me a little wary of the trade, and will be one of the factors to trading a small amount of shares. Low volume=more risk. And as you know, risk is something I am trying to avoid!

Happy Trading

After such a great presentation on Candlesticks today with Mike McMahon, I wanted to find another trade that incorporated Japanese Candlesticks. I stumbled across PKI, which has exhibited a hammer pattern for the second day in a row. As you will recall from the webinar today, we were focusing on pattern probablility and how to use them to increase our odds. The Hammer pattern has a 60% chance of a price reversal, although the reversal is usually not a sustained one.

In this example, the target is lofty, however with proper money management, we will modify our stop once profitable. Here is how the trade sets up:

Long above $19.79
Stop Loss at $18.95
Target at $22.95

I anticipate that if we do get a pop to the upside, we will encounter some resistance at $21. At that level we will encounter a prior demand level, as well as the 20SMA.

Happy Trading!

As Thursday’s FREE Candlestick presentation quickly approaches, I wanted to visit another of the common candle formations. Today’s search brings us to Silver Wheaton Corp (SLW). After a sharp sell off of hearly 20% in 6 days, SLW bounced hard (as did the entire market!), and closed with a strong Bullish Engulfing pattern. These patterns indicate a change in sentiment on the part of the buyers and sellers. That sentiment shifting from a bearish viewpoint to a more bullish one. The strength and impulse of Wednesday’s trading activity implies further upside movement.

The only real negative items I can see with this trade are the 50SMA directly over head, which could act as resistance, and secondly, the low volume on such a strong day. Volume is about 2/3 of what it normally is indicating a lack of interest with the price move. Not normal for a bullish engulfing with any real strength. Here is how the trade sets up:

Long above $19.15
Stop at $18.45
Target at $21.44

Happy Trading!