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There is an infinite number of intraday trading patterns, however, it’s possible to identify key elements that allow making successful trades based on the repeatability of certain setups. We have identified several patterns that are appropriate for establishing a short position. Although, to our knowledge, none of these patterns have been described before, we have reasons to believe they are real and repeatable.

In the following examples, we will try to simplify some of those patterns for you, using only price lines (black), the previous close price (red circles), the 10:30am-11:30am intraday reversal (pink bands), resistance (red) and support (green) lines and key points for pattern recognition.

• Intraday setup 1: The no news drifting.

• Intraday setup 2: The intraday round top reversal.

• Intraday setup 3: The moderate bad news gap down.

• Intraday setup 4: The (lack of) earnings release.

• Intraday setup 5: The massive gap and crap.

Intraday setup 1: The no news drifting.

Stock XYZ opens close to, or slightly below, the previous close price. In a bearish market day, this often leads to a price drift that accelerates during the morning reversal. The "midday doldrums" (a common term used to refer to the buyers’ indifference at noon) may drive the price below previous support levels. At the end of the trading day, a fear sell-off (b) and a late panic sell-off (c) may occur. The morning reversal weakness, the support violation and the imminent sell-off (x) are appropriate points for establishing a short position. This pattern "loves" Fridays and Mondays.

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Intraday setup 2: The intraday round top reversal.

Stock XYZ opens close to, or slightly above, the previous close price. In a bullish market day, this often leads to a price increase (a) that may stop during the morning reversal (b), particularly if the stock reaches a resistance level. The penetration of resistance levels and uptrend resumption (f) indicates a failed setup. However, a successful morning reversal will usually drive the price to the next support level (c) and the "midday doldrums", may add further weakness. Once the support is violated a clear downtrend is established (d) and even reinforced by a late panic sell-off (e). The morning reversal weakness and the support violation (x) are appropriate points for establishing or adding to a short position. This pattern "loves" bullish Wednesdays.

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Intraday setup 3: The moderate bad news gap down. 

Stock XYZ opens below the previous close price and goes down to the next support level (a). In a bullish market day, it may try to bounce back, but the previous close price may act as resistance (e). More frequently, after a sharp decline, the stock consolidates around support (b). Good companies often exhibit a complete price recovery (f), but low-performance companies or technically overbought stocks have no psychological support to prevent a breakdown (c) after the initial consolidation. Short trades are often favored by a further late panic sell-off (d). This setup is an excellent predictor for a multi-day, multi-point, price decrease. Support violation (x) is the appropriate point for establishing a short position. As indicated by its name, this pattern is associated to bad news before market opening.

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Intraday setup 4: The (lack of) earnings release.

A stock whose earnings conference is set at 11:00am (time varies) exhibits a downtrend since several trading hours before. Prior to the conference (we assume they will release negative earnings or decreased guidance) fear may accelerate the downtrend (c). Because of normal market reversal, confusion or short covering, the price may bounce back at support levels (this is called a "dead-cat bounce" in low-performance stocks), only to quickly resume the downtrend (b). Sustained selling is unusual, and the stock may experience price stabilization during short periods (d), but late panic sell-off (e) is often seen. Support violation after confirmation that news were really bad (x) is the appropriate point for establishing a short position. This pattern can be spotted 1-2 days before earnings conferences, when fear or "news leaks" make the price drift constantly.

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Intraday setup 5: The massive gap and crap.

Speculative stock XYZ releases good news (or sometimes neutral news during a market euphoria) and gaps up by 10%-50% (a). This leads to a buying frenzy and panic short covering that sustain the gap and increase the price. At certain outrageous price levels, momentum players and daytraders, not savvy investors, are buying the stock. Since the stock is testing new highs, resistance levels are unknown, and traders will use round numbers (i.e. $10 increments, a $98-100 price, etc.) to start unloading their positions (c). Once short-term traders begin selling, the uptrend is over, since no one will like the stock at such high prices. Traders will also look for Fibonacci ratios to guide their trades, and a 50% retracement is often seen (d). However, if the news ultimately proves to be neutral (or bad), a 100% retracement is feasible. Price reversal after round number tops, and downtrend resumption after a short consolidation, are optimal points for establishing or adding to a short position.

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