X To short or not to Short

You're scanning on a beautiful Wednesday evening in Miami and you run across X. You look at the chart and see that it has had 2 red day. What should you expect for day 3? Should you expect a green to red move, should you prepare yourself for a gap and go or should you sit back and wait for the reversal. Truth me told these "looks" can turn out to be some of the most challenging type of plays. You are kind of torn both ways. It's the type of play in which your discipline will truly be tested. For today let us take a look at X. Here is the daily

Disregard the green candle. I was looking at it Wednesday night and this has Thursday included. Having said that I saw that the move could go lower, we could potentially reach the ma200 on the daily. Remember that the market however doesnt give a damn as to what you think or feel or know. You should only care about what it DOES. I looked as this chart and was slightly confused. Do I steer my bias to a g/r do I stay away and let it drop more if it does and then play the reversal? What do I do in a situation like this

One idea is to have 2-3 plans for each possible scenario so in this case:

1) If stock opens green ( you set your levels) and it starts to show weakness going red take the short since you know the probabilities would be higher for this move (g/r) 

2) If it gaps down since the support is nearby stay away and wait for a potential reversal play

3) If it gaps down slightly you can also wait for a strong short set up and short it , as long as you know that at any sign of strength you need to get out! 

Well , let's see what actually did happen Yesterday

As you can very well see by the trendline that I have drawn on the intraday chart the stock gapped down slightly pushed up a bit tried to go green and failed at the trendline. Next you see a lower high was formed signaling a potential short. You could take it if you wanted to and still make a nice gain, but as I mentioned you had to know that this was already day 3 of the move and anything could and did happen. The shorts saw a nice gain until the moment that X pierced the trendline with strength ( remember this is not a signal to long yet in my opinion , this is simply a warning that things are changing). X had gone green already with some considerable strength and had broken the trendline. Remember this was also day 3, time to be on the lookout for a reversal. As soon as X pulled back to form a higher low you had to be stalking it for the long. And as you can very well see the long worked out quite well if you were patient and disciplined. The goal here is to have a plan a written plan is even better but also to adapt to what you see happening. Until next time!