5 Winning Chart Patterns Every Daytrader Needs To Know

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Table of Contents

Introduction
Trading the Charts
Two-Day High Breakout After Cup on Open
Two-Day Low Breakdown Shorts
Pivot Long Fibonacci Bounce
Pivot Short Fibonacci Drop Off Previous Day
High
Open Gap Reversals & Gap Fills
Bonus: E-Mini Intrarange Cups

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DISCLAIMER: By accessing these materials, you hereby indicate agreement with all
terms in our disclaimer. You assume all risk and liability resulting from your trading

activities and agree to consult with a registered investment advisor and/or broker
prior to trading stocks. You agree to hold Daytrading University, its staff, affiliates
and personnel harmless from all liability. All Rights Reserved. Best wishes for
successful trading! (c) 2001-2004 Daytrading University
Introduction
"Take massive, consistent action to achieve your goals." -Tony Robbins
"Daytrading can be a real pain in the ass, at first." - Ken Calhoun
This ebook is one in a series of ongoing practical daytrader training products that
DTU produces to help active traders like yourself learn how to trade effectively.
By sharing my own personal favorite Nasdaq daytrading chart pattern setups with
you, I hope you will learn to profit as I have in the market. Trading is tough, it's
hard work.
Do you remember your early trading wins? The losses? What have you learned
from them? Has it helped improve your trading? Think now of the exhilaration, the
frustration, the stops and and learning curve.
Hopefully, you've become more cautious, more accurate at clearly identifying the
chart patterns and indicators that work out. I hope you'll let me share some of
what works for me in my personal trading activities with you.
My method: most of my trades are from 2 to 15 minute round trip trades done in
the 9:40-11am timeframe each trading day.

Why I Developed this Book
I remember my first year or two of trading - it was a lot of hard work. I read a lot
of books and visited a lot of websites, most were not nearly detailed enough to
help me when I was in front of the monitor trying to decide whether to buy or sell.
So then I tried chatrooms. Most were "buy it now" places, with a lot of offtopic
conversation and a lack of realtime training in the technical details of how to
daytrade. I didn't know why this stranger in a room was saying to buy a stock
where they were. Momentum trading is like gambling, and I do not gamble.
Offtopic conversation, while entertaining, was not helping me become a better
trader.
So, I decided to learn how to trade my own methods. After having tested many
techniques and methods out there, and experimenting heavily for a couple of
years, I've distilled the "essence of what I've learned" into the course materials
and live room at Daytrading University, and update it monthly with new
information.
This ebook is a sample of my methods - you will learn some of the chart patterns
that I have personally found to be the most successful in it.
The reason I developed this book was #1) to share with you what I've found
works and #2) to continue to build credibility with you and other traders who may
want to learn about DTU's other resources, like our videos and daytrading course.
Fair enough? Even if you don't decide to get anything else I offer, I provide this
ebook to you as my gift, and hope that it will help you identify more profitable
trading setups.

How to Use this Book
You're busy - let's cut to the chase:
Click on everything and check it out (that's what I do lol)...then:
Review the charts and take a few weeks comparing them, especially the
2day high breakout pattern, to what you see in your own trading rig.
Use bigcharts.com charts on 2-day time horizons if you don't have a
commercial data feed, to check the validity of the methods I share, at the
end of each market day.
Carefully papertrade a core basket of 5-8 stocks using one of the chart
patterns at a time. Stocks that are good for trading in August 2003, the
revision date of this ebook, include ADBE AMGN BGEN ERTS MERQ EXPE
GENZ GILD KLAC LLTC NVLS MXIM QCOM and others.
Experiment and see what patterns work out the best for you personally. Can
you correctly identify the signals? What percentage of the time do they yield
winning trades vs being stopped out? What's your success?
Refer back to this book, and others as they are released, for additional tips
and techniques. To get on the mailing list for future ebook releases, just
email me and I'll let you know when a new one is available.

Put the Trading Odds in Your Favor
There's an overwhelming amount of information that exists online for today's
active trader. Where to begin? How to get down to business? Let's "filter the
noise" out and focus on chart patterns for Nasdaq daytrading....
Become a technical trader - make sure you have specific reasons for every entry,
not just "it looks like it's going higher". That will have your trades fade out on you
often. Make sure to keep the tiniest of stops possible - I like to use .2 to .3 type
stops, and let the wins go from 1/2 to 1.2 or so type trades.
Trade stocks in the $20-$60 price range with at least 1M shares average daily
volume at first. Do Not trade cheap sub-$20 stocks or low-volume stocks. Do not
let bad daytrades or blown stops turn into "swingtrades".
Personally, I think it's a good idea to papertrade for at least a year prior to risking
live capital in the market, and use 100-share trades for the next 6 months etc.
Take your time - this is a profession, like any other. Rushing into trading has left
the vast majority of impatient people broke and back at a day job. Don't go there.
A few words to the wise: Be very cautious, and test out all the methods and
techniques you read about. Be sure to daytrade with a good multimonitor setup

(2-3 monitors minimum) and a fast internet connection (56k won't do) as well as
a direct access broker.
This is a profession for well-trained and prepared people only. Treat it like a
"budget online broker daytrading gambling" approach, and you will likely join the
ranks of the broke. Treat the markets with respect, learn it professionally, and
your opportunities are limitless. Please be cautious out there, and take your time
learning how to trade.

Good trading,
Ken Calhoun

Contact information
Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading University
WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors.
Includes your banner and site links. Click here now for details!
DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk
and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to
trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff,
affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full
responsibility for the outcomes of all of your trading decisions.
(c) 2001 Daytrading University. All Rights Reserved. Best wishes for successful trading!
Trading the Charts
"A chart is like a map, the more information each one provides, the
better the chance of reaching your destination safely." - Steve Nison
Using Charts for Nasdaq Daytrading
It took me months of experimenting to get my complete chart setup right. Below
is a thumbnail of my current six-monitor chart setup. Click here or on the
thumbnail to see a full-screen version
You don't need to get this elaborate at first, but it's a good example of what a
professional trading rig looks like (eg, think, 'hey I'm trading against guys with a
setup like this"):
What you Need to Know About Chart-Based Daytrading
Here's a few tips:
I typically spend a lot of time waiting and watching for a chart
setup to emerge that looks poweful enough to yield a healthy
profit. I may trade from zero to 8 or so roundtrips each morning.
Be a skeptic - always look for reasons to not trade the stock.
Become discerning, look for specific indicators.
Integrate the market signals, look for relationships. Example: Make
sure the compq and sector charts are making new highs along with
your stock chart for safest long entries. Don't trade "too late" in a
trend, eg the market may run for 10-15 minutes max in a single
direction on initial moves, don't be buying 10 minutes into the
trend, especially for 9:30-10am trading.
Make sure you are using the technical indicators correctly eg the
TRINQ (should be under 1 for longs), the type of COMPQ day it is,
eg green/red, wide vs narrow range, and finally your stochastic/ma
crossovers (secondary, use for exit signals).

Also, pay close attention to:
#1) the broad market charts (COMPQ/TRINQ) and sector charts (SOX
GSO GHA GIN etc). Making new 1-day highs? 2-day highs? By 2-day, I
mean today and the previous day. Important to gauge the market
relative to previous day's trading range, trend and ohlc values
(open/high/low/close).
#2) the stock chart pattern for the one you're trading, eg cup pattern?
2day high? intrarange short/long?
#3) time and sales for the stock: what's the story of the buy/sell
pressure?

Common Mistakes to Avoid in Trading & Reading the Charts
Level 2: is for order routing only, you do not make trade decisions based
on what you see, since there's a lot of headfaking and bluffing there. I
also use it to help me manage my stops and trailing stops, using the red
band value as a conservative/close stop level. (eg .2 out of market etc).
Stochastics/ma crossovers: these are primarily for exits, they do not
work well in the choppy markets we've had this last year or two for
determining trade entries.
Stochastics and nas futures-based daytrading methods are only for the
scalpers who trade 2K-5K blocks of most actives, it's not the right set of
indicators for trade entry decisions for most of us, who trade 100-1K
shares of the volatile Nasdaq daytrading stocks.
Failing to use charts as part of a system: You need to see the big
picture of the market each day, eg is it a red or green day, is it a volatile
or choppy day First.... then, use the chart patterns to help you identify
profitable entries and exits. Also know the time of day patterns, eg best
trading is done from 9:40 til 11am each day.
Not trading within the reversals - get your timing right: Market has
reversal times, eg roughly every 10 minutes during the first half hour,
also 10am, 10:30, 11:15, 12:30, 2, 3, 3:30 typical reversal times. So,
don't go long into 10-minute long run during the first half hour etc, wait
for a consolidation and cup breakout for next entry long.

Other Tips
Avoid the noise: I do not watch the financial news television after 9:30
EST (I use it to watch the premkt futures magnitude and trend only).
Get a good trading system: For my data, I like using esignal.com.
Make sure to have a good set of tools and data and a fast broker to
daytrade. Don't skimp on trading, the "price vs total cost" is significant.
Your first year or two daytrading Nasdaq stocks, just focus on learning
how to correctly enter stocks making new highs over the previous day's
high, especially if these follow consolidation or bullish cup breakout
patterns.
Let's move on...
Daytrading University's Trading Success Secret #1
Limit your attempts at "bottomfishing" and "shorting tops" to
zero percent your first year, 20% max your subsequent years.
If I were to give myself advice as a new trader, this would be a top
priority. Make an 80/20 rule, buy breakouts as 80% of your trades,
there are plenty of cup breakouts to trade, limit bottom bounce
attempts to no more than 20% of your trades. Try it and see!

Contact information
WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's visitors.
Includes your banner and site links. Click here now for details!
DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all risk
and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker prior to
trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading University, its staff,

affiliates and personnel harmless from all liability. Past performance is not indicative of future success. You hereby assume full
responsibility for the outcomes of all of your trading decisions.
(c) 2001 Daytrading University. All Rights Reserved. Best wishes for successful trading!

"Mastering the chart patterns and being able to instantly spot micro
support/resistance & trends is essential for successful daytrading" - Ken Calhoun
Daytrading University's Winning Chart Pattern #1:
TWO-DAY HIGH BREAKOUT After Cup Pattern On the Open
Let's start with our basic "power chart" that I encourage every trader to learn.
Want to trade with smart money? Professional traders know this - here I will share
the tip with you. Institutional buy programs use the previous day's
open/high/low/close data as part of their algorithms, in addition to prem/fair value
and other data.
Like most gems, it's easy to spot, once you know how. It's revealed here now
publicly for you. As a side note, by showing you all this one, it's validity won't
diminish - it will continue to be my favorite entry criteria.
You know a cup pattern, right? Looks like the letter U. Basic enough, you buy cup
breakouts. Here's where it gets interesting:
Step by Step Directions:
1. Use a two-day 2-minute time interval candlestick chart as your primary
daytrading chart. By Two-Day chart, I mean have a chart that shows today and
the previous day's trading ranges and activity, along with volume.
2. Scan through your basket of core trading stocks, and look for a stock
that is about to move above it's previous day's high for a long entry. You
want to avoid buying "in the range" of the previous day's trading for this play. This
is because pro money flow isn't in as strongly. Pro money flows into or out of
stocks once they have gone over the previous days high (longs) or under the
previous days' low (shorts).
3. These trades are always executed in the 9:40am til 11am timeframe,
and last from 2 to 15 minutes max. roundtrip.
Here's two examples using MERQ (signal) and VTSS (no signal):
How to Use this Chart Pattern Correctly
Be sure to wait until the stock has cleared at least .3 above
the whole number over the previous days' high. For example,
if EBAY's high was 55.8 yesterday, you would wait for it to get to
56.3 for the long breakout entry today.
Moderate these entries with the following two factors: a) Know
the stocks' average daily trading range, and avoid buying 3/4
of the way into its' range. For example, if PSFT has a 3-4 point
average trading range, hold off on a breakout long if its' already
moved 3 1/2 points on the day in the direction of your trade; b) Do
not enter late in a run, eg if the COMPQ has already just moved
for the last 10-15 minutes in one direction without a pullback, you
should be careful about a new entry in the same direction - timing
is key.
Use time & sales to help you gauge the buy/sell pressure prior to
any daytrading entry. Tape reading is a skill that must be practiced
to help you determine the net buying in the stock. Use this to help
support or negate your trading decision, in addition to the chart
pattern.
In MERQ you can see we waited til it got over 55.5 for a long entry.
In VTSS, we didn't trade it since it never made a breakout from the
previous day's range.
Of all the patterns I train traders in, this one is the single most important
to master. It is my "bread and butter" pattern that I use to help me
identify a large percentage of correct long entries for. You can go long for
a stock that's trending to make a 2day high breakout as well. By the way,
a cup isn't required, but it does add solid strength to the pattern as it is
"seller tested", vs just a buying continuation.
Let's take a look at the next pattern...
Patience is needed for breakout trading. You may well go a day
or two before you see a setup like this one. Avoid the temptation to
overtrade and try riskier intrarange trades. It's better to be bored
than broke, and you don't want to trade because you're tired of
waiting for a breakout. Simply turn off the pc and wait for the next
day.
Capital is hard to replace, your time is best spent looking for
successful entries, not trading everything that "looks like buyers are
there", only to get stopped out. So, wait for breakout trades - it's
worth it.
Contact information
Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit Daytrading
University
WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to your site's
visitors. Includes your banner and site links. Click here now for details!
DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume all
risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or broker
prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold Daytrading
University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of future success.
You hereby assume full responsibility for the outcomes of all of your trading decisions.
(c) 2001-2003 Daytrading University. All Rights Reserved. Best wishes for successful trading!

"..identify a change of trend in a market as early as possible, take your position,
ride the trend, and close your position before or shortly after the trend reverses
again" - Vic Sperandeo
TWO-DAY LOW BREAKDOWN Shorts
The inverse of the previous chart, we look for stocks that are trending or making
cup breakdowns below the previous days' low. As with the prior example, the
rationale for this one is that the stock has triggered buy program weighting on
loss of the OHLC Low value, and is getting weaker.
1. Use a two-day 2-minute candlestick chart, as in the previous pattern.
2. Look for the stock to dip below the previous day's low. Also check that
the TRINQ is over +1 and that the stock has not made a "sudden drop" of .75 or
more of a point, to get under the previous days' low. As always, make sure your
sector charts are headed down and that we're in a "red day", eg sectors are
negative, eg SOX -1.1%, before entering these, for added safety.
3. These trades can be done in a longer timeframe, and off known
reversals, eg shorting off a 10am reversal, or shorting into lunch selling
weakness.
Here's an example trade using NEWP:
Be sure to wait until the stock has cleared at least .5 below
the whole number under the previous days' low. For example,
if NEWP's low was 23.5yesterday, you would wait for it to get to
23.5 or 22.5 for the short long breakdown entries today.
Moderate these entries with the same factors as the longs in the
previous example: a) Know the stocks' average daily trading
range, and b) Do not enter late in a run
Use time & sales as well, it's used for all trades, along with the
market, sector and stock charts.

These are much higher percentage than trying to short a stock that's just
run up a lot, thinking you're "shorting the top", remember to sell/short
weak stocks and buy strong stocks.
Do Not fade (go against) the trend unless you are very experienced at
reversal pivot trading and can read a stocks' tape (t&s) like the daily
newspaper. Even then, limit fades to 20% of your trade attempts max.
Breakdown shorts are for experienced traders - practice order
routing extensively prior to shorting. Shorting is an effective
daytrading strategy for experienced traders. Since you have to have
an uptick to short into, your risk is slightly higher than with long
entries. Be sure to spend plenty of time learning how to trade long
prior to attempting shorts, so you don't get frustrated by poor fills
and short squeezes.

Contact information
University
DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You assume
all risk and liability resulting from your trading activities and agree to consult with a registered investment advisor and/or
broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You agree to hold
Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of
future success. You hereby assume full responsibility for the outcomes of all of your trading decisions.

"For technical analysis to work for you, you must be totally disciplined: as soon as
the reason that you entered the trade is no longer there, you must exit as quickly
as possible." - Chris Lewis
PIVOT LONG FIBONACCI BOUNCE off the Previous Day's Low
Breakouts are the best of all trades, and should account for 80%+ of your trading
activities. There are also those occasional fibonacci bounce plays that can be
profitable to enter, when selected carefully.
This chart pattern is designed to help you identify the best entry for a long bounce
play, again using the 2day chart.
1. In this trade, we're looking for a fast multipoint drop (over 1 point)
down to the previous day's low, followed by a cup pattern long reversal
bounce. You do not want to "catch a falling knife" by guessing at a bottom. Make
sure that there is a cup pattern, a decent "U" of at least .3 to .5 point off the
bottom before trying a long bounce entry. You don't want to buy a downtrending
stock til the trend is broken on cup pattern bounce off the previous days' low.
2. Look for volume and time & sales strength accompanying the reversal.
Volume reversals are powerful, the initial short covering spurs new buyers and a
short squeeze, both of which support our long entry decision.
3. Now, once in, set your trade expectation no higher than 38% (first
exit) or 50% (second exit) of the range of the drop, using these Fibonacci
retracements as guidelines for exit targets. For more on fibonacci
retracements, get Rick's excellent free FibCalc program. Stocks will often fall and
bounce to half their initial range, so trail closer stops as the stock recovers to the
fibo areas.
4. Your max stop loss is the previous low, once the stock has dropped past
this your reason for entering the trade is gone, and so should you be. Typically,
good trades are good from the start, and I give them very little "wiggle room",
eg .2 or .3 max on any single trade, often less.
Here's an example trade using IDPH:
Bounce plays are risky - be skeptical and only enter bounces off
large fast multipoint drops, not stocks that are slowly grinding
down, those are most likely shorts. :)
Confirm these with time & sales volume on a reversal. Make
sure that there's solid buying volume on a reversal. You can only
determine this if you've been watching the time & sales for the 10
minutes of so prior to where you'd look to go long on a bounce, so
you can detect a shift in the trend, a reversal. Needs at least a year
experience, so don't try this, new traders.
Use candlestick dojis to help spot pivots and reversals.
Nison's candlestick books are required reading, be sure to at least
get the "Beyond Candlesticks" book - it's excellent.
For Nasdaq daytrading, be sure to look for the bottom bounce off
the previous days' low following a sharp multipoint drop, nothing
less is strong enough.
Bounces are tricky, and require faster order routing and trailing stops
than breakout trading. Once mastered, they are a useful addition to your
trading skills, and are fun to trade, when done right.
When I was just starting out, I'd always guess at bottoms and "try to
beat the crowd in" and buy the bottom. If I had it to do over again, I'd
have just focused on breakout trading my first year, and added bounce
attempts only in year two and beyond, limiting them to just 20% of my
trade attempts.
Restraint is needed to avoid making too many bounce trade
attempts each week. Of all my discipline issues, this one is still up
there as a top one. I'm great at keeping small stops, but resisting the
occasional bottomfish is a much tougher job. What I've found is that
these follow through much less often than the breakouts do. So, to
minimize risk, minimize the number of "bounce attempts" you
make.
Contact information
University
Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance is not indicative of
future success. You hereby assume full responsibility for the outcomes of all of your trading decisions.

"You cannot reasonably expect a pullback rally to climb all the way back to a
trendline that is ascending at a very steep angle" - Edwards & Magee
PIVOT SHORT FIBONACCI DROP off the Previous Day's High
This is what I call "shorting the right leg of the letter M"... it's a trade in which you
look to short the failure of a double top to breakout.
1. On your two-day chart, you look for buying up to the previous days'
high.
2. Typically, the faster the move, the faster it will attract a reversal/pivot.
So the best types of patterns are those where it shoots up say from 9:45 til 10am
and starts to fade/sell back down at 10am, right under the previous day's high,
this is where a short entry can be considered. A steep slope is preferred to a
gradual climb, which indicates a strong stock.
3. Look to short only after a small bear cup pattern on volume is seen. This
looks like an upside down U, eg the letter A... let the stock lose at least .3 to .5
before firing off the short. Enter at the .5 or so under the previous days high when
you see sellers and time & sales in favor of sellside bias.
Here's an example trade using CHKP:

Don't try to guess tops or bottoms, make sure you have chart
and time & sales confirmations.
As with all "fade" trades, eg pivot type trades, you look to
close the position as it approached a fibonacci retracement
value, 50% of the range max. You trail closer and closer stops,
eg up to the red band in L2, yes even with decimal trading, keeping
it tight, as it approaches a fibo retracement value.
In the example above, there's a triple bottom at 47 on the previous
day, a high of 49, so the 50% fibo retrace value is 47.5, at which
point the stock consolidates/chops, so we cover out the short for a
nice profit.
Dynamic Position Sizing: In any of these trades, you should
become familiar with how to incrementally add to and get out of your
positions, building them when you're proven right, and getting out
with trailing stops to lock in profits on the trades that work out.
The technique? Start your position with the largest size first, then add
50% increments to it. In this example, we could for example short
our first 400 shares CHKP at the 48.5, then short an additional 200 at
the 48.3, and cover out the whole 600 when it starts to bounce at the
47.5 or so.

Contact information
Active TRADERS - Want to get more trading tutorials, tips, and video clips? See our main site - Click to visit
Daytrading University
WEBMASTERS - Run a stock-related website? Get a free cobranded version of this valuable ebook to give to
your site's visitors. Includes your banner and site links. Click here now for details!
DISCLAIMER: By accessing these materials, you hereby indicate agreement with all terms in our disclaimer. You
assume all risk and liability resulting from your trading activities and agree to consult with a registered investment
advisor and/or broker prior to trading stocks. Daytrading is inherently risky and is not suitable for most people. You
agree to hold Daytrading University, its staff, affiliates and personnel harmless from all liability. Past performance
is not indicative of future success. You hereby assume full responsibility for the outcomes of all of your trading
decisions.

"Every time you look at a chart...the first two questions that should pop into your
mind are Where is support? Where is resistance?" - Toni Turner
OPEN GAP REVERSALS & GAP FILLS
These are well-known, and are occurring less often (as of 2001) since the market
makers know that daytraders anticipate them. But, they still do pop up on the
scanner now and then (I've found only 4-6 tradable opportunities each month, for
example), so they're worth learning about.
I'll share some specific tips here to help you make the most of gap open trades,
with a few subtle entry tips that should help you with these high-percentage
trading opportunities, when they do occur.
1. Be sure to use a commercial data feed that gives you premarket chart
capability. This provides a powerful edge, so you can see what the stock is doing
once it's gapped up or down. The trend and the cup pattern need to be spotted.
2. Look for stocks that have gapped at least a point, over 15%,
premarket. It's preferable to see stocks gap over 15% in either direction
premarket, well outside of the previous day's trading range. Then, you set your
entries above the whole point over the current gap up/down for both continuations
and reversals on the open. I do not buy stock premarket, I'll wait til the market's
opened and gotten some initial direction before deciding when to enter, eg after
9:40 am. If you're fast, you can trade premarket and on the open.
3. Be ready to buy large gap down recoveries that are making a new cup
pattern high over the previous premarket high, or, short a premarket gap
up on a bear cup pattern breakdown under the previous premarket low
(RIMM). You should be equally prepared to short continuation
breakdowns as well (BEAS).
Here's two examples using RIMM and BEAS:
Gap plays are for experienced traders only. Your criteria
should be: a) must gap at least a point or more premarket on
heavy premarket volume (eg over 40K shares by 9:30am) and b)
must be in the $20+ / share price range.
Your first job is to determine premarket micro-support and
resistance lines. For example, in RIMM, it would be roughly 31.7
and 32.3.
Your second task is to watch the tape premkt and into the
first 10-15 minutes of the open to determine whether it will
be a GAP REVERSAL (RIMM) or GAP CONTINUATION (BEAS)
type of play. Watching the tape is critical to this, and using your
support/resistance lines to help determine your entry.
Because of the added volatility, experienced traders can
consider stopping out and reversing if their first trade was
in the wrong direction. Let's say we had bought BEAS as soon as
it got over 33.5 in anticipation of a bounce. This didn't happen, it
got sellers instead. An astute trader could have sold and fired off a
short into an uptick and covered out as the stock continued on
down for a nice profit. Adding position to this, we could consider
shorting another 200+ shares under the 32.5 on a continuation,
covering over the 30 decade support later in the session.

The gap reversal and continuation trades are difficult to master, and, like
"buying bottoms and shorting tops", should wait until you have
successfully mastered breakout trading.
Even experienced traders should limit reversal/pivot types of trades to no
more than 20% of their trade attempts, and focus instead on micro-
breakout type trades, as explained in the first two chart patterns.

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Daytrading University's Winning Chart Pattern #6: E-Mini Inside Cup
Interior Cup+ Pattern for NASDAQ E-Minis
Let's look at intrarange cup patterns for E-minis in this chart pattern lesson.

1. Identify the previous day's high, low and any "inside cup patterns" from the
previous day's trading chart. See the 1216 cup below, in the previous trading day? I've
drawn a line to indicate this. I've drawn a second line to show the previous day's high,
which as we know, we use as resistance/exit area for current day's trading.
2. Set your current day's entry trigger just above the cup pattern that was formed
in the previous day's trading. In this case, that would be just over the 1218 area.

3. Be ready to exit into the previous day's high, as a resistance area. In this case,
that would mean for example, I'd be selling in the 1226 area.

4. "2nd move on breakout": if waiting for a breakout entry, it would be just over the
1228, previous day's high. In this case, however, you can see that it would stop out, since it
barely made it over the previous day's high prior to retracing. So, keep both strategies,
intrarange cup breakouts, as well as 2-day high/low breakouts, in mind as you're seeking
trade opportunities.
Here's the chart, see if you can spot these patterns as described above:

CONGRATULATIONS!
You've seen many of the patterns I like to use.
For more, see the main DTU site (click here) . We have videos, courses
and other resources to help you apply these daytrading techniques.
Thanks for taking the time to study this popular DTU Ebook. I hope it
will continue to serve as a good reference tool for you in the months
ahead.
Feel free to refer back to it anytime you wish.
If you've liked this ebook and would like to be on the email list for future
ebook offerings from Daytrading University, feel free to email us (header
"ebooks") and I'll make sure you are kept in the loop re: new ones as I have

time to develop and publish them.

Good trading,
Ken Calhoun
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Best wishes for success in Your trading!

Contact me anytime at ken@daytradinguniversity.com with questions or comments.
I reply to every email within 48 hours.
Look for the updated 2004-2005 version of this ebook coming soon from
Daytrading University!

5 Winning Chart Patterns Every Daytrader Needs To Know

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