Don't Ignore Reversing Candles at Price Resistance

If I'm fortunate enough to have a winning trade and I see a topping candle at price resistance, I'm generally going to sell.

Psychologically, it's not always easy to do so, because a reversing candle many times means that a stock trades well off its earlier intraday high. Selling at the end of the day, after a much higher price earlier, can be a difficult pill to swallow. Most of the time, though, I believe it's the right decision to make. Take a look at Arch Capital Group's (ACGL) shooting star candle from Thursday:

Enter Arch Capital Group, Ltd. (ACGL):

As traders, we live in a world of probabilities and tendencies. There are no guarantees. It's up to each of us to manage risk. ACGL could absolutely break out tomorrow. I've seen it before. But, I've seen the opposite much more often. False breakouts and shooting star candles usually lead to short-term weakness. ACGL could end up falling all the way back to gap support below 61 - or even lower. At today's close, ACGL could have been sold at 64.10. Risk management would have suggested a sell on ACGL and I'd have listened.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.