It's usually a good idea to enter trades in the same direction as the primary trend of the time frame you are trading. For example, if you are trading using daily charts, you'll enter the trade in the direction of the daily trend. If you're not sure of the trend for your timeframe, you can always find this trend information in the Technical Analyst section of the RightLine Report.
It's also smart to anticipate price levels where positions can be entered in stocks with very low risk. One good way to do this is to look for trades that are likely to take place near technical resistance levels.
- The Trend Is Your Friend - Even When It's DOWN
This trade Set-up first looks to determine the current trend,. As the name implies, the trend has to be Bearish, which is downward. Once the strength of the trend is confirmed, you wait for a normal pullback or bounce to take place. This temporary reversal is often called a "relief bounce." We won't go into detail here, but there are certain criteria that qualify the pullback as "normal." Included is the distance the stock bounces in proportion to price, and the length of time it takes to complete the rise after the relief bounce begins.
The final and most important requirement for a Bearish U-Turn set-up is determined by how the stock price reacts when it comes in contact with a resistance level, such as a specific moving average. The preferred reaction occurs whenever price rises to the resistance level during intra-day trading, then reverses and moves down a certain percentage of the day's high-to-low range.
Once the Bearish U-Turn setup is in place, you will want to see a confirming sign that the previous downward trend is about to resume. This sign -- which we call the "Trigger" -- is usually a price move that goes below a short-term support level, such as the low of the Set-up day. This should normally occur within one or two days after the Set-up day. That move is your signal to immediately enter the stock. Once a position is sold short, you should place an Initial Buy-Stop for protection, and then follow up with a Trailing Stop as the trade moves favorably.
Here is an example of a Bearish U-Turn Play setup:
One of the positive characteristics of this type of trade is the tendency for the stock price to gain momentum as it moves away from the point of entry. Bearish U-Turns often become positive very quickly. This allows you to move the initial stop to the break-even level, at which point your position becomes a "free" trade. In other words, there is no risk of loss so long as the stop is moved only in the direction of the downtrend.
Bottom Line: Now you know how to enter a Short-Sale using the Bearish U-Turn. In every issue of the RightLine Report you'll find similar setups with entry and exit details for specific stocks poised to make profits in the current market environment. Whether you are a full time or a part-time trader, RightLine gives you everything you need to quickly select the best stocks for your time frame.
Now let's move on to the second method you can use to make money in bad markets - Buying Counter-Trend Bounces ...
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