Big T analyzes the failed chart pattern short of SPY on 4-27-10

I missed the entry on it by a good 10 minutes, but the last 20 minutes of the red as blood session today on the street provided an excellent basic example of the profits to be had in shorting failed chart patterns.

If you have not read my articles on this subject, visit my "Instruction" top tab at the upper right of this blog.

http://traderbigt.blogspot.com/2010/03/shorting-failed-breakouts-from-3-recent.html

The above article details this subject, and links to an original article on the same subject that is a nice read.

Today, the SPY tanked with some blood in the streets. Why usually does not really matter, but you can read this if you are curious:


http://www.istockanalyst.com/article/viewarticle/articleid/4065652

Once a bottom of 118.841 was put in on the 12:10 PM EST five minute candle,  SPY rallied on lesser volume, faded but stayed above the lows, rallied briefly, then touched down to the lows finally at 3:40 PM EST where the moment of truth was at hand. See the 1 current day 5 minute chart chart below:

I drew a white line underneath the lows on the diagram. These were finally taken out in the last 20 minutes.

Many bottom fishing traders are familiar with the double bottom pattern, even intraday.

So they go long at what price they hope will prove to be support, which they figure here is the daily low. Some are so daring the buy the bottom and hope it holds, not even waiting for a hold of that support and a confirming bounce to begin before jumping in.

This becomes a bull trap of sorts.

Remember the head and shoulders fakeout some months back in the market rally? It was supposed to be the end of the rally, so tons of shorts loaded the truck when they thought the bottom of the pattern had been broken, so it was easy money. The markets head faked and soared back up through the level, trapping bears.

That would have made a great long, because the shorts having to cover would have intensified the gains.

Failed chart patterns, in their various forms, are some of the best and easiest money makers around in stocks. 

Today, the head winds were very bearish, so going long at the low was already asking for it. Always stick to the broader consensus and never try to impose your will on the trend. Just bet on the side that is winning.

Letting other fools act first is also the key to profits. Once these bulls are trapped, and they realize they lost and have to get out with a loss, it makes the situation even better for the failed chart pattern trader.

Using an inverse ETF like SPXU fits the bill nicely, allowing you to short the S&P with triple leverage by going long.

Once the daily low failed from above, very quickly jumping into a scalp with some size using SPXU would have been a nice play.

Many folks think they can outsmart consensus. They try to impose their will on prices, instead of letting prices impose their will on their actions in formulating winning trading approaches. The best trades are the easiest.

Never force plays. Always try to pick up for FREE the dollar bills that blow effortlessly in your direction! 

Failed chart pattern entries allow you to do just that...


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