Skip to main content

Today I would like to point out one common pattern for low risk setup.  Here I am using Apple Inc. as an example.  This is IMHO the easiest and reward pattern as far as I know and I often apply it on my trades and be able to minimize the risk and profitable returns in short term or as a middle/long term setup.  We need to have patient and clear mind to interpret it correctly.  Here are couple steps to identify this pattern:

  1. Target on a well known and large company.  One less factor you need to worry about bankruptcy or shocking news.
  2. Watch for consecutive whole red bars (from 5 and up, usually 8-12 is optimal and perfect).
  3. Trend level will definitely go lower along the line if #2 happens.
  4. Watch the closing price action flat for 2-3 days, flat means within 0.1%-2%.
  5. The top portion of bar (ST turns green) may show a sheet of green sometimes and this is a good sign right before rally.
  6. Either #4 or #5 appears, it is a low risk setup and good to take position right before the market close.
  7. Whenever there are black bars especially appears at the LT portion, that means a short term top and you might get hurt if you buy at that time! 

 

To confirm your position is correct, the next day the bar should look like the one on Dec 9 as the following chart and the following things would happen:

  1. Positive closing price action (price rise).
  2. Whole green bar (all 3 portions of the stacked bar turns into green).
  3. Higher trend level (if #2 happens, this should happen).

How long you want to hold your position?  I have no answer for it (The meal is in front of you and how much can you eat?  I don't know.).  But remember not to let someone take you meal away if you are eating too for too long (know when to take profit, usually best trades for short term are within 3 to 10 trading days, time it if you have no idea).

 

 

Apple Inc stock chart snapshot (AAPL)