Step 1 – Look for 3 WHITE SOLDIERS against Minor Price Resistance, and/or a declining Major Moving Average (10 MA, 20 MA, or 50 MA). Ideally you want to find a series of 3 green candlesticks; however, 2 green candlesticks can also work well.
Step 2 – Pull up a 15 min. chart of the stock.
Step 3 – Monitor the stock’s trading during the last 30 minutes before the close, and enter only if the stock is closing weak near it’s low price of the day. You will reduce the risk of the by entering only if the range of the day (high price minus low play price) is narrow. This way, when you set your protective stop at the day’s high, you will only take a small loss if the stock should reverse.
Step 4 – Observe the daily chart after the market has closed. The stock has now formed a BEARISH HARAMI on the daily chart, but you were able to spot the setup on the previous day and enter before the rest of the herd! On the next day, observe where the stock opens. If the stock opens relatively near to the opening price (say within 5/8th), place the initial protective stop 1/8th above the high of the previous day’s candlestick. Exit the stock immediately if the stock breaks above this price. If the stock gaps down, proceed to Step 6. If the stock gaps up, proceed to Step 8.
Step 5 – Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price to 1/8th above these levels of resistance. This will protect your profits, and/or minimize your losses if the stock should turn against you.
Step 6 – If the stock closes weak on the previous day, there is a good chance that the play will be spotted by other traders (note that it has now formed a BEARISH HARAMI on the daily chart), and result in a morning price gap downward. If the stock gaps down by over 5/8 point, cover half of the position immediately after the open to lock in your profit. Place a protective stop 1/8th above the high of the first 15 min. candlestick for the remainder of your position.
Step 7 – Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base resistance) on the 15 minute chart, and re-adjust your protective stop price to above these levels of resistance. This will protect your profits, and/or minimize your losses.
Step 8 – It is also possible for the stock to gap up on the following day due to overall market strength. If the stock gaps up and opens 5/8th higher than the previous day’s close, DO NOT PANIC AND COVER RIGHT AWAY. In most cases, the stock will sell off after a gap up, and the high price of the day will occur in the first 5 minutes of trading. Let the stock trade for 5 minutes and place a protective stop 1/8th above the high of the first 5 minute candlestick. Cover the stock immediately if it breaks this protective stop.
Step 9 – Monitor the stock as it continues to decline downward. Look for areas of resistance (either minor price resistance or base price resistance) on the 15 minute chart, and re-adjust your protective stop price to 1/8th above these levels of resistance. This will protect your profits, and/or minimize your losses.
Step 10 – Monitor the stock as it declines downward, and stay in as long as the protective stop is not violated. After the stock has achieved 1 point profit or greater, look for signs of strength. A bullish candlestick on the 15 minute chart will serve as a good indicator for a reversal point. After the price reaches an area of support and strength, cover half of your position. This may occur on the same day as entry, or on the following day, depending on the weakness of the stock. Maintain the latest protective stop price for the remaining half of your position.
Step 11 – Allow the stock to continue it’s decline. After the stock has declined further, again look for an area of support where the stock begins to strengthen and reverse. This could be a DOJI candlestick, or any other reversal candlestick pattern on the 15 min. chart. Cover the remainder of the position for profit.
Brought to you by CandleStickShop.com
