Have you ever bought a car and then suddenly noticed every time the same car passed you by or was parked in the same parking lot as you? Or perhaps you've bought an article of clothing and then noticed just a few weeks later that many people bought the same thing! Focusing on a particular image or object tends to increase your sensitivity and awareness to that object or image! Today, we will briefly discuss two powerful short entry patterns. We will discuss how to recognize them, and how to trade them.

The first pattern is very simple.The first idea to keep in mind is that many powerful short entry opportunities begin with strong run-ups in stocks. Pay attention to large run-ups in stocks as you search for short entries. Often times, you may see a gap up in price or a significantly higher high far into an uptrend. It's also common to see heavy volume on this same bar. But the problem with this particular bar is that it reverses and the stock ends the day far from its intraday high. The days following the bar show that the stock cannot make it above this high and both lower highs and lower lows start to form in the stock. You can see this exact occurrence in May in Ingersoll-Rand stock. As in many strong one-day reversals, the stock continues downward and a powerful downtrend occurs. The longer and more powerful the uptrend preceding the reversal, the more powerful the downward movement should be for the short entry. It's prudent to set a stop at the high of the one day reversal. The logic behind this pattern is simple. Institutions and investors have bid the stock price higher than the market will take and sentiment on the stock changes, resulting in a pronounced intraday reversal. Panic selling typically begins at this point.

Ingersoll-Rand

The next pattern we'd like to discuss is the triple-top waterfall (TTW). As with the previous formation, be on the lookout after a large run-up in the stocks such as the one that Jacobs Engineering Group experienced in May of 2006. This pattern is characterized by three large tops, the last of which precedes a large drop in the stocks price and an excellent opportunity to profit from a short trade. The TTW's are initiated with a one-day reversal pattern such as the one mentioned previously. Often times, the one day reversal will have heavy volume. The stock never makes the high that it made at the high of the triple top. The best triple tops begin with down closes where the distance between the highs and the lows increases. This shows that the stocks is moving downward powerfully and the time is right for a short entry. Watch carefully for these 2 short patterns. They both begin with large run-ups in the stock price so that's where to start looking. Find good examples of these patterns so that you'll recognize them easily in the future.

Jacobs Engineering Group

Price Headley is the founder and chief analyst of BigTrends.com.