Exhausted Selling Model

[calven]

ESM

This is one short term reversal trading pattern I'd like to share with the board that is used for daytrading stocks with major (panic) selling pressure...you know, those stocks that move down -20%-40%+ in just a few hours. This pattern is usually good for a quick 10% bounce and has proven to be extremely profitable when identified correctly. They key is finding stocks with regular waves and rapid selling.

Criteria
Time Frame - 1 min / 180 min chart (whatever is most applicable)
Red Line - Downsloping trendline resistance
Blue Line - 40/50 Period MA (Find an MA that connects the tops of the waves)

Key Points
Yellow Highlight - Volume spike
1st Green Highlight - Higher Low Wave
2nd Green Highlight - MA Violation
3rd Green Highlight - Trend Confirmation (ENTRY LEVEL)
Sell Objective - Previous consolidation base
Stop - 3% below the "Higher Low Wave"
*Factor in other long term support levels...




Now lets take a look at a real life example.... Real money, real time, real profits!


In PLAY - CBi

*Delayed earnings release sending the stock down 16% . Currently testing trendline support, 200 day ma, and horizontal support. If earnings are even neutral the stocks moves 10% from current levels.

CBI
Time Frame - 1 min / 180 min
Red Line - Downsloping trendline resistance
White Lines - 40 and 50 MA's

Green Circle - Volume spike
1st Green Dot - Trend Violation
2nd Green Dot - Trend Confirmation
Blue Blur Line - Sell Objective

150 shares purchased at first trend violation - $22.55
150 shares sold at sell objective - $24.40

+$1.85 per shares or +$277.50

[calven]

Got my entry at 5.75 (3rd green dot) but missed my fill (sell) 6.20 by a penny! 

Later price of 6.45... +.80 possible. Great swing....

[calven]

Full tutorial published here: http://www.craftytrader.com/~craftytr/press/articles/article.php?article_id=11

Enjoy....

[ScottishTrader]

I really like this model too - may not have quite as big profit potential, but seems to be a lot more common.  Also very good for day trading/short term swing trades.  My only problem is with the Moving averages - do they have to be 40/50??  sometimes this is just too shallow, or is this the whole point, that a MA this long will only be pulled down by a serious downward selling?

[calven]

Moving averages are whatever connects the tops of the downward move. Notice it says (whatever most applicable)

In the case I used 40/50 in the scottrade window.... this is NOT the 40/50 day ma..only the 40/50 period ma in scottrade.

[ScottishTrader]

Do you think we might have another exhausted selling bounce forming in AOB???  This a 15min chart, with a 50 period MA - thoughts?

[calven]

The chart you have meets all of the criteria besides the "higher wave". To do so it would need to break over 4.60 as that was the previous waves high. otherwise looks good

cal 

[dyc100]

Thanks, your strategy looks really interesting, just curious, do you see exhausted selling model apply to ISPH?

[calven]

Hey folks,

Recently got the ESM published with www.investopedia.com , a well respected trading website. You can read the finished publication here: http://investopedia.com/articles/trading/06/ESM.asp


Cal 

[ScottishTrader]

Nice one Cal, just used it once again, after the sell-off on SUF - looked to fit the ESM very nicely on a 15 min chart/21MA.  Found the ESM quite useful several times in recognising when to enter a heavily sold off stock.  Keep up the good work

[calven]

That AOB chart using the ESM model above was excellent ScottishTrader! I have been so focused on the WW thread that I didnt get the chance to take the AOB trade. Nice work and thanks for the kind words! 

Dont forget the ESM can be used on long term charts with the MACD. One stock I am using it on is BBI - high risk/high reward.    (11 month chart)

cal

[ScottishTrader]

BBI is so good, I'll post the chart for others to see:

Very nice example of long term ESM formation.  My target would be $5.50 (correct me if I'm wrong)

[ScottishTrader]

Also, Here's the 15 min chart on SUF - any comments appreciated

[calven]

BBI chart with the ESM looks great! Basically the same annotations I made on my chart. You obviously understand the model. OUTSTANDING!    Now I know people are getting this...     BTW: Im in BBI from 4.00   +4%

SUF also looks good, perfect fit for the ESM - PANIC SELLING. Target of 12.50 is appropriate. Sometimes I like to place a trailing stop below the support moving average if I have a short time horizon (to protect decent gains). I just checked out the 5min 2.5 day chart of SUF in scottrade and it looks great. I see an ascending triangle forming. You have 12.50 as a target but SUF could actually reach the bottom of the first steep drop off - 13.75 (sell just before that - 13.30)

On the other hand if it breaks down I would exit the trade as soon as 10.40 prints...

I dont want to get too complicated but in theory you could use the ESM and "flip it" (EBM) to find a top.

cal

[calven]

Not sure what to make of GOOGLE (GOOG)

Could be a great candidate for the ESM tomorrow!