{"id":229,"date":"2008-12-01T09:48:30","date_gmt":"2008-12-01T13:48:30","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=229"},"modified":"2023-04-10T17:13:04","modified_gmt":"2023-04-10T21:13:04","slug":"using-patterns-to-turn-the-tables","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/using-patterns-to-turn-the-tables","title":{"rendered":"Using Patterns to Turn the Tables&#8230;"},"content":{"rendered":"<p>Many traders become frustrated when a stock follows a pattern they deem to be illogical.\u00a0 Their frustration mounts when they take a loss do to this &#8220;irrational&#8221; pattern and they may actually trade against the pattern even after they have identified the correct way to trade the stock through rational observation.<\/p>\n<p>DE had a large gap down after releasing their earnings report last quarter.\u00a0 I decided to trade DE as it was most likely going to be In Play.\u00a0 I lost a lot of money in DE that day.\u00a0 One of the main reasons was I got short when the stock looked weak and would drop support and got long when it looked strong and lifted resistance.\u00a0 Each time I opened a position it would reverse.\u00a0 Eventually I was convinced, based on its failure to breakdown below its intraday low despite an awful earnings report, that it would rally.\u00a0 And in the late morning that is exactly what it did.\u00a0 Unfortunately, I was unable to participate.\u00a0 I had hit my self imposed loss limit by trading against the pattern and had already moved on.<\/p>\n<p>Flash forward three months.\u00a0 DE releases their earnings report and gaps down.\u00a0 One of our traders suggested at our <a href=\"https:\/\/www.smbtraining.com\/blog\/trader-90-trader-365\">AM Meeting<\/a> that it would be a good stock to trade.\u00a0 During our discussion I mentioned last quarter&#8217;s trading pattern with the desk.\u00a0 And cautioned them to not short weakness or buy strength during the Open.\u00a0 And that perhaps for some it would be best to let the stock settle until it began a trend later in the AM.<\/p>\n<p>Take a look at the chart below.\u00a0 You can see around the Open that DE reversed several times.\u00a0 I set a price alert below the premarket low of 29.65.\u00a0 My alert triggered soon after the market opened.\u00a0 I watched DE drop quickly from 29.50 to 29.\u00a0 I knew others on the desk were watching DE as well.\u00a0 I called out NOT to short it as it dropped 29 because of the possibility of a quick reversal.\u00a0 I made this call vocally because there is a tendency amongst traders, especially those who are less experienced, to open a position late in a move when the risk\/reward is less favorable.\u00a0 They see panic selling or buying and want to hop on for the ride.\u00a0 But the reality is that panic often occurs near the end of moves and when it subsides a stock will reverse powerfully.<\/p>\n<p>A bunch of bids were hit out at 29 in DE and it traded lower for a few seconds.\u00a0 I got long.\u00a0 Less than one minute later I was selling DE more than 50 cents higher.\u00a0 I shorted at 29.65 and within one minute I was covering at 29.20.\u00a0 This pattern continued during the first 30 minutes of trading.<\/p>\n<p>As you can see from the chart below DE began to make higher lows and eventually broke to the upside in the late morning.\u00a0 Those on our desk were prepared to take advantage of the quick reversals on the Open and the trend that occurred later in the day.\u00a0 At SMB we believe that a fundamental part of being a successful professional trader is learning from our mistakes so as not to repeat them.\u00a0 But we also believe that the knowledge gained should be exploited for profits at a later time.<\/p>\n<p><a title=\"Intraday Chart DE\" href=\"http:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2008\/12\/501228100198220mail.gif\"><img decoding=\"async\" src=\"http:\/\/www.smbtraining.com\/blog\/wp-content\/uploads\/2008\/12\/501228100198220mail.gif\" alt=\"Intraday Chart DE\" width=\"500\" \/><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many traders become frustrated when a stock follows a pattern they deem to be illogical.\u00a0 Their frustration mounts when they take a loss do to this &#8220;irrational&#8221; pattern and they may actually trade against the pattern even after they have identified the correct way to trade the stock through rational observation. DE had a large gap down after releasing their &#8230; <a href=\"https:\/\/www.smbtraining.com\/blog\/using-patterns-to-turn-the-tables\" class=\"more-link\">Read More<\/a><\/p>\n","protected":false},"author":143,"featured_media":230,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,15],"tags":[194,195],"class_list":["post-229","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-steven_spencer_steves_blogs","category-trading_theory","tag-day-trading-smb-capital","tag-pattern-recognition"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Using Patterns to Turn the Tables... | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/using-patterns-to-turn-the-tables\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Using Patterns to Turn the Tables... | SMB Training\" \/>\n<meta property=\"og:description\" content=\"Many traders become frustrated when a stock follows a pattern they deem to be illogical.\u00a0 Their frustration mounts when they take a loss do to this &#8220;irrational&#8221; pattern and they may actually trade against the pattern even after they have identified the correct way to trade the stock through rational observation. 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