When Good Patterns Go Bad

08/19/2008 12:00 am EST

Focus: STRATEGIES

Bo Yoder

Publisher and Writer, 5MinuteInvestor.com

Often, the biggest money is available to active traders when good patterns go bad. When a pattern sets up, then goes weak-in-the-knees, undisciplined traders scramble to get flat. These knee-jerk traders fuel the fire of panic and the pattern unravels into a violent whipsaw. In the above chart, you see a classic breakdown pattern that set up, and then failed. In my view, the shorts were risking $5 on average to capture a projected $10-$15 in profits. By identifying the failure early on, a fade trader would have risked no more then $3, and captured nearly $10 in profits in little more than a week.

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