Another Example-DECK

This one is different, but lets take a look....

 Looking at DECK, I can tell, without even looking at 3C that the red arrow day was a head fake (false breakout). It gapped up and gave up the gains. It didn't swallow the previous day's body so this is a "dark Cloud Cover" candle-still bearish, still a reversal candle. Resistance is about $92.60 and that's a possible area to go short or as part of phasing in (discussed later)

 Looking at the daily 3C chart, I can see DECK is "toppy" with distribution starting back in late 2010, but the real bad divergence came at the false breakout, note how much lower 3C is, even though prices made an intraday new high.

 The hourly chart just confirms that gap sticking out like a soar thumb, which could not hold it's gains, was a head fake to trap longs at a loss. Never mind the bigger negative divergence we see from 2/08/2011

 The 10 min char also confirms the same, so we know there was distribution and or shorting by the locals that day. This leaves a bad taste and we know it's not a healthy stock, that doesn't mean it can't move yup and this is why I cautioned you in the most recent risk management article to use wider stops initially, we HAVE to adjust to the market, it is as we find it, not as we would have it or remember it.

 The 5 min chart shows a positive divergence, so this could very well bounce a bit, thus the wider stop, still we know even in a bounce this sin't a healthy stock. Remember, we have to take the wide view, the big picture.

 Here's a 1 day version of the trend channel that has held DECK's rally, so I'm using it now. The TC works based on each stocks own trading volatility, not a preset number like Bollinger Bands that are more generic, the Trend channel is fine tuned for each individual stock. I put a red 22 day moving average on the chart to show you how it works as a decent replacement for those who don't have TeleChart or StockFinder-for those who do, email me and I'll share the custom code I wrote for the indy. Note when DECK was trending down, the upper line of the trend channel was the stop, also a move above the red 22 day m.a. would have been a stop on the CLOSE. Now that we have a trend up and note how the channel has widened to account for recent volatility, now the bottom channel line is the stop and a move below the 22 day moving average functions as the same.

Now, on looking at the big picture, when a stock approaches the end of a rally it gets very volatile, note the straight up price ascent ended the rally in 2007, and look at the current one now. THIS IS A 5-DAY CHART.

LOOKING AT A 1-DAY CHART, DO YOU THINK YOU WOULD HAVE NOTICED THAT SAME VERTICAL VOLATILITY? This is why we must compare as much as possible. "3C" stands for "compare, compare, compare" as a reminder.

The trade here is a little harder because it's not a swing trade with a signal candle. Thus I would consider this a short in a few circumstances, phasing into the trade and adding more shares as it moves higher, but save at least 50% of the allocated funds for when price breaks down and confirms the trade-PRICE IS ALWAYS THE FINAL JUDGE. That can be determined by 3C if and when the bounce takes place and ends or for a higher probability trade, when the trend channel stop is broken.