'Finally everyone else understands what a great bargain this stock is at this level.' They entertain thoughts of how much money they are going to make when the stock gets back to its high. The High- trendline signals a breakout and bottom pickers rejoice. This one is fairly balanced unlike the descending wedge earlier. Towards the end of the chart you will see another wedge formation. When you see a chart like this the red warning signs should be flashing for many months and your mindset should always be to short breakdowns. They are the reason the chart looks like shit. They have better information than you do and they have infinitely more money than you do.

This is a gross over-reaction to the problem and it is a bargain at this level.' Know that the sellers are smarter than you are. 'But company XYZ has been around for 20 years and they make the best 'gizmo' on the planet. Here's where most traders get into trouble. It's just a matter of time until 'Papa Bear' comes home. That breakout above is tradeable for pros, but you have to use smaller size relative to the shorts you took on the way down, and you do not want to overstay your welcome. More than a month of trading formed that trendline and you should avoid buying 'V' bottom bounces. In this case you can see that a High- trendline with a gradual slope forms. Remember, we do not want to pick bottoms. When the angle of the Low- is greater than 60 degrees and the angle of the High- is greater than 75 degrees, a bounce is likely. As these Low- and High- trendlines (blue shaded trendline connecting the highs) converge, a wedge forms. This is descending wedge is extremely steep.Īs the move unfolds the Low- trendline (blue shaded trendline connecting the lows) will also be very steep. Moves like this tell us that there will be a lot more downside. The High- trendlines are close to 90 degrees and that is another sign to watch for.

The obliteration of support levels is another clue. The speed and ferocity of the move (stacked red candles on volume) are the 'tells' to watch for early on. These are excellent patterns for shorting. Eventually, older Low- trendlines will be revealed and they will be triggered all the way down.

As you can see in the chart below, each new trendline breach provides confirmation. Next, horizontal trendlines fail along with gradual sloping Low- trendlines. If it was steep, we know not to fade the up trend. Notice that the Low+ had a gradual slope (< 45 degrees). Initially, the stock will breach Low+ trendlines and they will give us an excellent entry point. We don't want to play 'patty cake' at these levels and poke at them, we want to destroy them. From a shorting standpoint, that is exactly what we want. The rout is on and the red candles start stacking on heavy volume.īefore we get started, familiarize yourself with some of the terms I will be using.Īs this move unfolds, support levels are obliterated. Buyers see their orders getting filled and they cancel their bids (buy orders) on the notion that they will be able to enter at a lower price. Sellers are aggressive and they are pounding every bid in sight. When the drop is particularly steep it is a massive warning sign. Picking bottoms is a nasty habit when it comes to personal hygiene or trading.

Steep falling wedge