Monday, December 11, 2006

Dummy Trade of the Day - Continental Airlines, Inc. (Public, NYSE:CAL)

It doesn't get much better than this. CAL gapped up and rallied hard, formed a tweezer top candlestick reversal pattern and pulled back in an orderly fashion (no overlap of candlestick bodies and lower volume on the pullback) to its rising 10 period EMA. Upon tagging the EMA, it formed a small hammer reversal bar. My entry was a break of the high of the hammer. I took a partial profit as price retested the morning highs and sold the balance into the close.

Tweezer top - two candles with identical highs. In the CAL chart, notice how the second tweezer candle is also a bearish engulfing pattern.


Anonymous said...

Good trade! I was watching this, but did not take a trade. Do you only take green hammers? Why not a break of the 6th bar high (red hammer)? Is the MA support part of your trading system?

TJ said...

Hi ExEngineer,

Good questions. The first thing I look for on pullbacks is a higher low or an equal low. We didn't get a higher low, but eventually the small inverted hammer just ahead of the green hammer was close enough to be considered and equal low. The reason I do this is not to get caught trying to pick a bottom. I do not limit my setups to green hammers, although I have a preference for them on long entries. The MAs are an integral part of my trading. I try not to enter a long position if price is too far above the MA. Price and MAs are like magnets and eventually they always find each other.