Hey trader,
Home Depot dropped another nine bucks today.
Half the traders I talk to bought the dip on it this morning. I refused to touch it.
That refusal is worth more than any indicator I have ever built. It comes down to two rules I have not broken in 39 years.
Today I’ll walk you through both rules and the four-indicator check behind them.
By the end, you’ll know when to leave a name alone. You’ll also know when to attack the trade with the algos.
The Two Rules
Never buy a confirmed breakdown. Never short a confirmed breakout.
Both rules sound obvious. Almost nobody follows them.
Every day I watch traders do the opposite of both. They buy the falling piano and they short the rocket ship.
A confirmed breakdown is a stock that cracked support on the daily and the weekly. The candle, the RSI, the MACD, and the money flow all fire in the same direction.
A confirmed breakout is the same picture inverted. Price breaks above resistance with all four indicators backing the move.
Fight either one and you are trading against machines with no risk filter. They keep going until the slope changes.
Home Depot Showed The Breakdown
Home Depot had support at $320. The stock broke under that level on a marubozu candle.
RSI and MACD both rolled over. The accumulation line showed sellers walking out the door.
That gave you four reasons to stay out. Most traders saw the bounce off the lows and chased the dip anyway.
The weekly tells the bigger story. Home Depot is in a daily downtrend and a weekly downtrend at the same time.
Buying that chart is a salmon swimming upstream against the ocean. The dip buyers will not get rescued.
The algos rope them in and walk the stock another leg lower. I have watched that exact pattern repeat for 39 years.
Rocket Labs Showed The Breakout
Rocket Labs is up another five bucks today. My chance of shorting that stock is less than zero.
People shorted at $97 and again at $111. Both groups blew up their accounts.
AMD told the same story. The stock broke out at $286 after failing twice at that level.
Traders threw their hat in the ring at $335 thinking the move was done. AMD is now another $115 higher.
You cannot short a slope the machines are paid to defend. Strength begets strength once all four lines confirm.
The Four-Indicator Confirmation
Single indicators will fool you. I rely on four every time.
The candle is the trigger. A marubozu or three black candles confirm the direction.
The RSI tells me whether strength is breaking or building. The MACD tells me whether momentum is rolling or curling.
Money flow tells me whether institutions are leaving or arriving. If all four agree, the trade is confirmed.
If even one diverges, the trade can break on you. I bailed on an Etsy scalp today after five bucks because the money flow lifted.
That single divergence saved me from giving the gain back.
The Airbnb Short Followed The Rule
I waited two weeks before I touched Airbnb on the short side. The stock was sitting in a flag formation that was not yet bearish.
The bearish signal arrived when price broke under the flag. The candle, the RSI, the MACD, and the money flow all confirmed.
That is when I attacked. My entry sits between $138 and $141 with my cover order set at $121.
I trade with the algos every time. Fighting them is how accounts blow up.
Your Job This Week
Pull up every long position you own tonight. Mark the support, the candle, the RSI, the MACD, and the money flow on each one.
If a name shows all four breaking on the daily and the weekly, leave it alone. Sell the stock or buy a put against it.
Run the same check on every short you are tempted to take. If the stock is breaking out with all four lines confirming higher, walk away.
The algorithms have no risk filters. You have one.
Start using it.
Professor Jeffrey Bierman
Creator of the Genesis COG System
