The recent price action in Accredited Home Lenders (LEND) reminds me of “the Great New Pattern” invented by praetorian2 (aka Harris B. Kupperman) over on elitetrader.com
The pattern is massive capitulation by the longs marked by sustained selling. The key factors are not only back to back price delines but seeing a decline accelerate (wider range candlesticks to the downside). Volume is also an important factor since it tells you how more and more longs are getting sucked into the selling by having their stop losses triggered or just panicking.
At the maximum point of anxiety, you watch for possible reversal. And at that first glimmer of light, you start scaling in. Kupperman actually scaled in as price was falling, anticipating the V bounce. This is very risky but he had made this pattern his own and knew instinctively how to lower his basis point without getting his head chopped off. The exit strategy is also piecemeal, if I remember correctly.
Here’s an example from the archives (way back in 2001):
We hear a lot that success in trading comes from finding your own way. This is a great example of that. Since Harris first ‘found’ this pattern it has continued to be repeated over and over again in the markets. And by consistently playing this setup he went on to great success as a trader.
Last I heard, Kupperman is still running his hedge fund, Praetorian Capital Management (with an offshore clone), and has assets of ~$6 million under management.
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