Profiting From Patterns

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During our AM meeting our Desk gathers in our conference room to discuss the stocks that will be “In Play” for the day. I usually also throw in some tidbits about recent market patterns that may help our traders make some “easy” money. Easy money is usually found in one of our core trading plays that our trainees learn during their initial 5 week training period. But sometimes it is a pattern that emerges in the market. I remarked at the morning meeting today that a wave of selling came into the market at the end of the day in the financial sector yesterday and to look for this pattern again today.

So after 3pm I was looking for good entry points to short FNM, a stock that had shown significant weakness today and I thought had a chance to close at or near its low. I noticed that it failed twice in the afternoon to have a sustained move above 8 and was beginning to trend down. I also noticed that each of its upmoves were becoming shallower and shallower. I established a short position around 3:15 when it dropped the 7.70 support level and couldn’t trade above 7.73. I was looking for it to drop below 7.63 to confirm my bias. Once it dropped the 7.63 level quickly (a level it couldn’t breach since the morning) I expected a significant Downmove. I was looking for at leas a 35 cent Downmove and possible a move to the major support level of 7.

I began covering my position in the 7.40s and got flat around 7.20. A nice chop on a 7 dollar stock. So remember, if you spot a pattern in the market exploit it for every penny.

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