If I ever get sick of looking over 1000s of charts every week, this will probably be the only type of setup I'll trade. Basically, it forms when 3 consecutive candlesticks are inside the previous days candlestick. A bearish setup occurs when the 1st and 3rd candlesticks close LESS than the open. A bullish setup occurs when the 1st & 3rd sticks close GREATER than the open. I normally trade them from the daily charts, but they can be traded off the intraday charts as well. When they are, you will find they are ALWAYS in some sort of triangle pattern.
When traded, the best shorts occur when there is little support under the most recently identified support. Likewise, the best longs occur when there is little or no support above the most recently identified resistance. An easy way to determine whether or not a stock is trending up or down is to put an 8 period MA on the daily chart and you will see that the best shorts are taken when the price has rallied to a point of resistance and the 8 Period MA has caught up to it and is starting to roll over....opposite for longs. This concept is nothing more than an indicator to help in acertaining if there has been sufficient consolidation at a level for a move to begin.
Trading is all about risk/reward. The 3 stick plays give you low risk entries and allows one to get high reward/risk ratios. The risk parameters are defined. When trading a bearish setup, you short on a move UNDER the 3rd stick with a stop set at the 3rd stick highs. When trading a bullish setup, the opposite applies.
Here is one I'll be watching Monday. It's a bearish setup with a short trigger under $27.25.....initial stop set at $27.90.....intiial target at the upper gap.....$22.50.
When traded, the best shorts occur when there is little support under the most recently identified support. Likewise, the best longs occur when there is little or no support above the most recently identified resistance. An easy way to determine whether or not a stock is trending up or down is to put an 8 period MA on the daily chart and you will see that the best shorts are taken when the price has rallied to a point of resistance and the 8 Period MA has caught up to it and is starting to roll over....opposite for longs. This concept is nothing more than an indicator to help in acertaining if there has been sufficient consolidation at a level for a move to begin.
Trading is all about risk/reward. The 3 stick plays give you low risk entries and allows one to get high reward/risk ratios. The risk parameters are defined. When trading a bearish setup, you short on a move UNDER the 3rd stick with a stop set at the 3rd stick highs. When trading a bullish setup, the opposite applies.
Here is one I'll be watching Monday. It's a bearish setup with a short trigger under $27.25.....initial stop set at $27.90.....intiial target at the upper gap.....$22.50.