There are so many ways to make money in the market. Let me be so kind as to show you one that proved to be a profitable trade on [[RKH]] back when it was $80 in July.
The “long tail down” PnF chart pattern is one of my favorite ways to bottom fish for a short term trade. Basically, you want to identify stocks (or ETFs) that have been oversold with prejudice. What’s nice about the PnF chart is that you can see this pretty clearly.
There are only two simple rules to enter this trade:
1. The PnF chart of the stock must have a current column of 18 or more “O’s”
2. You buy the stock on a “3-box reversal” off the bottom.
WTF am I talking about?….Let’s revisit that RKH trade:
Here is RKH back on 07/15/08. Notice the “long tail down” column of O’s. Supply was in control of this ETF.
Based on the rules of this long tail down trade, you buy the stock on a “3-box reversal”, or in this case, 3 points up. Since the low hit $73, the rule tells us to buy it on a break above $76. Why? Because, we want to wait until demand is coming back into RKH.
The next day, the stock gapped up at the opening past $76. It satisified rule #2, and I ended up buying it around $80. It closed over $89 the same day.
Here’s where it’s at now:
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That said, here are some stocks to put on your “Costanza Watchlist” that might offer you a potential long tail down trade:
Costanza Stock #1:
I will buy E on a break above $66. If the stock goes lower, I’ll keep watching it with the 3-box reversal rule in mind before buying it.
Costanza Stock #2:
If it doesn’t go below $40, I’ll look at buying it on a break above $43.
Finally, a classic Long Tail Down Pattern…..
Costanza Stock #3:
These are strictly short term trade setups, so be willing to sell to take a short term profit when the opportunity presents itself. But remember, “Costanza trading” involves risk.
Disclaimer: This information is not meant to be the basis for your investment decisions. Trading and investing involves risk. Do your homework first, then decide if you want to risk losing it all based on a philosophy promulgated by a short, fat bald man on a TV sitcom, that is no longer running.
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