It’s time to get technical with chart analysis as novice traders are flooding the stock market. With there being more traders than stocks to buy, some stocks are bound to become worth more than others… while others will quickly fall in value. And when traders notice stocks that are experiencing a downtrend or a corrective phase, the best shorting strategy to turn to is a “h-sell” stock chart pattern.
You won’t find a ton of information on h-sell stock chart patterns in your technical analysis books because the term was coined by regular investors like you and I some years back.
In this pattern, you’ll see a stock decline, start to get a little bit of a bounce and roll back over to break it’s prior low — making a similar shape to the lowercase “h” (hence the name).
The h-sell pattern helps you trade a stock that’s in a downtrend by accurately predicting where a trader could short against the top of the “h” (i.e. the bounce) and then watch as the stocks momentum continues down to break its prior lows.
How much have you seen the h-sell chart pattern in live-action?
It’s a surprisingly popular pattern among option traders like you and me; however, you won’t see technical analysis books mention this one. With patterns like this, the only way you’re going to learn about them is figuring them out yourselves… or follow a trading guru like me who will teach it to you for free.
You see, when a stock is going to break support and is about to make a move to the downside, you don’t want to buy on that h-sell pattern… because you’ll end up getting burned.
Don’t believe me? Let’s take a real-time look at Lowe’s Companies Inc. (NYSE: LOW) daily chart below:
You’ll first notice the stock recently had a beautiful run to the upside, going from $100 to $180 a share. And while we could try to draw out all the moving averages and trend lines that we wanted to, all I care about is whether the stock is going to go higher or lower soon.
I want you to start drawing out a lowercase “h” and remember what it looks like. Now taking a look back at Lowe’s daily chart — you can actually use this strategy with the daily/five-minute/15-minute/30-minute chart of whatever stock you’re currently trading — draw a “h” over the first h-sell stock chart pattern you see.
In my case, the h-pattern began after LOW hit October highs at around $180 and then began to fall.
The next thing you need to do, believe it or not, is then find the second h-pattern on the chart.
Seems simple enough, right? But did you notice anything different from the first h-sell pattern’s prior low and where we broke support in the second h-sell pattern?
If you take a closer look at the chart, you’ll see that after we broke below support on LOW’s previous low, there was a downside flush of volume and shares moved lower — before bouncing up for a short rally.
Do you know at what point I plan on selling LOW next?
See if you’re right in the video below!