As I always do, I read before bed on stocks I am interested in. Every tweet that I saw was saying how bullish this candle was yesterday. They went on and on about how great of a value it was at these levels and an easy $75-80 target. As I was closing my eyes, I began to see it popping 3 dollars in the first 30 minutes the next day. Of course I couldn't sleep because I have a healthy short position.
I got to my office as I do every morning, with my resistance and support lines already drawn and checked things out. Here is what I saw on a more zoomed up level, 30 minute chart.
All that I saw was the stock building underneath a previous breakdown level. If you have read any of my previous articles, trending stocks build blocks. If its uptrending, the blocks build on top of each other. If it is downtrending, the blocks build under each other. So with my bias intact, I let the market open. Below is the first 2, 5 minute candles of todays action.
To all my bad dreams from last night and all the tweets that I read, I immediately called bull shit. Lets short this thing.
Why was my thinking this? Didn't it break above a previous resistance? Well yes it did, but it was weak. If it had power it would have shot up with much more force than it did. Why did it not have the power? The DAILY chart. The DAILY chart was in a steady downtrend and building underneath levels. This quick pop up and fail is confirmation that there is resistance above.
So what do you do? You short this failure. Now mind you, I did not think this was going to have this much power to the downside as it did today. My original day trade short was only a scalp. But the point is your DAILY chart is the most important thing when it comes to trading. Do not get sucked into false breakouts when the trend says otherwise. Go with the trend, it is your friend.
Great blog. Excellent analysis. Thank you, Jake. I love it, brother. Please keep it coming.
ReplyDeleteI see and understand everything you're saying, nice post Jake.
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