The basic setup is featured in the above illustration. It can be for a stock that is in an uptrend or downtrend. The trigger event for an entry is for the stock to be down from yesterday’s close. As long as a stop loss above today’s high is an acceptable risk while trying to capture the price target reward, you can enter the trade. Otherwise, you would have to use intraday resistance levels. I will include numerous examples and case studies for this setup, because I want you to have a complete understanding of how I trade this powerful setup.

This stock showed up on the Sky Scraper Scan when it was trading at 28.20. The stock had enjoyed a nice run, and I felt that it could go down to test the previous highs at 24.80 (horizontal line). The plan was to short the stock at 28.20 and place a stop loss at 28.95 (0.20 over the high of the day). The reward to risk in this case is 4.5. Let’s see what happened next.

Over the next four trading days, the stock traded down to 24.19 and met the 24.80 target. Although many traders feel uncomfortable shorting stocks that are trending upward, if the reward/risk ratio justifies the trade, professional traders should be encourage to execute it.

This stock showed up on the Sky Scraper Scan when it was trading at 49.20. The stock found resistance at 50.25 for the second time in two days and the third time in seven days. The pattern could end up as a double top pattern. The way to trade this setup is to short the stock at 49.20 and place a stop loss at 50.45 (0.20 over the high of the day). The first price target is the previous tops that were tested successfully around 42 (middle horizontal line). The second price target, should that price level not hold, would be the lows around 27. This would complete the double top pattern. Let’s see what happened next.

Stock trades down through 42, completes the double top pattern, and hit the 27 price target.

Following the double top pattern, the stock trades down 82% before hitting a bottom at 9.13. By using the Sky Scraper Scan, we found this stock at its pivot point just before it broke down hard. The entry point that day represented very favorable reward/risk ratio.

This stock showed up on the Sky Scraper Scan when it was trading at 96.50. The stock found resistance at 95-99 for the third time in two months. The pattern could end up as a triple top pattern. The way to trade this setup is to short the stock at 96.50 and place a stop loss at 97.33 (0.20 over the high of the day). The first price target is the previous low at 69 (circle on left). The second price target, should that price level not hold, would be the lows around 55 (circle on right). Let’s see what happened next.

Similar to the previous stock, the stock in this example went down 75% and hit 23. It easily hit both the 69 and 55 price targets. Again, the Sky Scraper Scan found the stock on its pivot day just before it collapsed. This is another example of combining support and resistance levels with the Sky Scraper Scan and executing a high reward/low risk trade. The weakness in the overall market greatly contributed to the sharp decline in both stocks. However, trading these setups based on support and resistance and finding these stocks by using the Sky Scraper Scan proved to be very profitable.

The Bottom Fisher Scan and the Sky Scraper Scan are simple to learn and implement. There are months that more than 30% of the setups I trade are generated by those two scans. If you can master the Bottom Fisher and the Sky Scraper scans, you can become a successful trader even if you don’t use any other strategy.