Class: Bearish, Week, Reversal, Early

Part 1 | 2 | 3

Bearish

Focus on stocks that have run up more than 10% in the last few months, but still have a two to three year down trend.
Look for recent relative weakness to the market.
The potential down reversal should be forming below the two-year trend lines and ideally below the 200 day moving average.
The rally should be the result of sector rotation or a rally in the overall market. Avoid stocks that are relatively strong within their sector and have recently released material positive news.
Sell-offs should be accompanied by volume increases.
Look for signs of weakness by using technical indicators like RSI and Money-flow.

Week

Look for fairly steep spikes within a two-year down trend. The spike will provide the stock with plenty of “leg room” to move lower over the course of a week or two.
This trade may take days to unfold. Try to scale in and average your entry cost.
Give the trade some breathing room and don’t place protective stops too close. Longer-term resistance levels can be used for protective stops.
The profit/loss percentage per trade will be larger than it is for Day trades. You don’t want to get “shaken-out” of a sustained move so you must be willing to give the trade more latitude.
If overall market conditions are improving, consider reducing the position.
If the move has not materialized in a week, exit the position and keep the stock on a watch list for future consideration.

Part 1 | 2 | 3

One Option