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Knock
Down - Examples
This stock showed up on my Knock Down Scan
when it was trading at 32.43 and was on pace to trade
higher than average volume. What I liked about this setup
was that the stock has consolidated for five weeks and was
finally breaking down through support. This is the first
day of the move. The only thing that bothered me about
this short sell setup was the fact that the stock was able
to get back into the channel and close there. However, the
increase in volume and the fact that the stock has been
making lower highs and lower lows inside the channel told
me that sellers were somewhat more aggressive on this
stock. Let’s see what happened next.
Stock trades down to 23.50 over the next
nine trading days. Please note that the stock did not take
out the high it made on the previous day on any of the
following trading days. If you sold the stock short on day
one and placed a stop loss above the high of the previous
day, you would have been able to stay in the trade through
day-nine. This should have resulted in a profit of 8.93
(27%).
This stock showed up on my Knock Down Scan
when it was trading at 39.70 and was on pace to trade
higher than average volume. The stock took out the support
levels established on the previous four trading days. It
then took out the major support level established two
weeks ago. This was a great short setup.
Stock trades down to 30.25 the next day.
If you sold the stock short around 38.50, you could have
captured about 7-8 points (18%-20%) in two days. You could
have used the reversal day strategy featured in the book, How
to Take Money from Wall Street, to both cover your
short and enter a possible long position.
This stock showed up on my Knock Down Scan
when it was trading at 49 (Point B), and it was on pace to
trade higher than average volume. It would have also shown
on my scan at Point A, but I took a day off that day. At
point A, the stock broke through major support levels.
What was showing tremendous weakness for the stock was the
rally attempt that I circled on the chart. Every closing
price was lower than the open. Once it showed up on my
scan at 49 (Point B), I took a short position.
stock trades down to 35 over the next
two days. If you sold the stock short around 49, you could
have captured about 9-14 points (18%-28%) in two days. The
key clue was that the rally attempt was extremely weak,
which showed that sellers were in control. This was
another huge winner generated by this scan.
Just like the Usual Suspects Scan, this
scan is also extremely powerful, but it has many flaws
that you must be aware of. The major flaw is that you will
get many results that you would have to filter through on
a daily basis. Many of the results will not be high
probability setups. Make sure that you look for the first
day of the move and use high-probability low risk/high
rewards setups.
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