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Step 1 – Pull up a Weekly chart of the stock.
Step 2 – Look for a BEARISH HARAMI against MINOR PRICE RESISTANCE, and/or a declining Major Moving Average (10 MA, 20 MA, or 50 MA) on the Weekly chart.
Step 3 – Pull up a Daily chart of the stock. Note that the Harami pattern formed on the Weekly chart is made up of 5 individual daily candlesticks.
Step 4 – Look for consolidation of the last 3 or 4 daily candlesticks at the low price of the week. This consolidation line represents an area where the stock takes a rest before resuming it’s downtrend. The objective is to enter the stock just before the next big downward move.
Step 5 – Enter the stock only if it breaks 1/8th below the area of consolidation line. This will often correspond to the low price of the week. If the stock does not break through the area of consolidation, 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 resistance where the stock began it’s 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.