Step 1 - Pull up a Weekly chart of the stock after the market closes for the week (Friday after close).
Step 2- Look for THREE WHITE SOLDIERS against MINOR PRICE RESISTANCE, and/or against the declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the Weekly chart. Place the stock on your watch list for the upcoming week.
Step 3 - Allow the stock to trade one full day. Pull up a Daily chart of the stock after the stock has formed the first daily candlestick of the week (Monday after close).
Step 4 - Look for a BEARISH HARAMI candlestick against MINOR PRICE RESISTANCE, and/or a declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the Daily chart.
Step 5 - Sell short only if the stock breaks 1/8th below the low of the previous HARAMI candlestick. If the stock does not break the previous day's low, DO NOT ENTER THE TRADE.
Step 6 - Mark off the 50% retracement line. This will be the halfway point between the line of resistance where the stock began it's decline, and the line of support where the stock begain it last major rally.
Step 7 - After entry, place an initial protective stop 1/8th above the high price of the previous day's candlestick. Cover the stock immediately if the stock breaks above this price.
Step 8 - On each new day, adjust the trailing protective stop to 1/8th above the previous day's candlestick's high price. Continue to use a trailing stop as long as the stock remains above the 50% retracement line.
Step 9 - After the stock has broken below the 50% retracement line, look for a reversal candlestick. This will most likely be a bullish candlestick which closes near it's high price of the day. Cover the stock for profit either before the market close, or at the market open the next day.
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Sunset Capital Management Ann Arbor, Michigan