Now that I'm finished with the CPA exam I've got more time to look at stocks. My method of day trading mainly involves shorting stocks as they reverse after having been on the fly. In the chart below you can see that Openwave (OPWV) went from around $0.50 to over $2.00 in the last several weeks. You can't easily short OPWV because it's under $5 (100% margin requirements, etc.), but this is just a good example of what I look for.

This past Monday, a "dark cloud" pattern appeared, as you can see in the chart below. "Dark cloud" is the Japanese candlestick term for this kind of reversal pattern. The trick is to short the stock on the day that the dark cloud forms. I'm not making any long term guesses about OPWV's direction. Maybe the stock will go on to quadruple in price again, who knows? But when I can get a 10-20% gain on a short-term reversal, I'm happy.

I'm dropping down to the 30 minute time frame in this last chart below to show how I would execute the trade during the day as the dark cloud forms. I actually traded off of a 10 minute chart back in the day in an attempt to get an even more precise entry and to limit my risk that much more. What's important is making sure the set-up puts you in a favorable risk/reward position before you take the trade.

In order to make money by short-term trading you have to identify and exploit certain patterns, and employ strict money management. Always place a protective stop loss order when you enter the trade, and intelligently trail a stop to lock in your profits. It's easy to say, but difficult to do.

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