Trading Failed Patterns - Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

RIMM from the WL, was setting up, what appeared to be a potential C&H pattern from an orderly rounded base. I took an early entry off of NR7 bar, which carved out a mini base on the 5 min. time frame below.

Everything was beautiful and just as the C&H pattern was set to go, it didn't. It printed a shooting star on the 5 minute time frame. I closed the long position and feeling a Friday afternoon sell-off about to get underway, I setup a short entry.

I had a wide stop, so size was small. Luckily, RIMM paused at the trend line and carved out a bearish flag on the 5 min., so I was able to add to my position. After the C&H pattern failed, price made a decisive and fast move lower. It paused at the trend line and printed several consecutive NRBs, as it attempted to bounce, it carved out a tweezer top, that signaled more selling to come. As I watched the bear flag develop, I placed a sell stop order two cents below the first green stick. And as each stick completed itself, I adjusted the price on the sell order, two cents below the last completed candlestick. As the flag sticks begin to look more bearish, you gain confidence in the setup. The target was the morning swing low and I covered as price approached the target.

Brian Shannon of Alpha Trends often reminds us on his video blog that failures can result in fast moves. If you're a long time viewer of his daily videos like I am, you know what I'm talking about. I'm trying to incorporate that idea into my trading. So if I see a perfectly formed bullish pattern fail, I'm going to try and profit from it on the short side.