Back on the 18th of this month I told you that Apple Inc (NASDAQ:AAPL) was trading in a price range of $83 to $100 a share. It was a pattern that had been ongoing since last November.

I said…

Here’s my big, bold prediction: AAPL is heading south. Short AAPL (or buy a put option if you’re feeling saucy) and ride the sucker down to $83 a share.

That’s a nearly 20% profit.

Always remember to play it safe by having a stop-loss before jumping into the play.

Check out this chart to see if this pattern played out…

As you can see, Apple soared past $100 and is now sitting at $108 a share. The call was wrong which is why it’s so important to place a stop-loss with every trade you make.

What’s the correct stop-loss to use? When pattern trading I usually look for a 5 to 1 reward/risk relationship.

So in the Apple example, if I expected gains of 20% then I’d place a stop-loss of 4% to keep myself safe.

Remember, losses will ALWAYS happen; it doesn’t matter if you are Joe the Plumber or Warren Buffet. But what separates the good from the great is the ability to get out of a losing position quickly and get into a winning one.

That’s because in this market, cheap is king.

Considering Apple sells laptop and desktop computers at a $500 – $1,000 price premium, consumers feeling the pinch of the recession are likely to shy away from buying an Apple computer in the short to medium term.

And this kind of pull back would undoubtedly hurt AAPL’s share price.

This is a chart AAPL that goes back to the end of September.

As you can see, AAPL has formed a nice consolidation pattern (I talked about these here) that has held since last November.

Basically, every time Apple hits $100 a share it drops. And any time it hits $83 a share, it climbs.

Here’s my big, bold prediction: AAPL is heading south. Short AAPL (or buy a put option if you’re feeling saucy) and ride the sucker down to $83 a share.

That’s a nearly 20% profit.

Always remember to play it safe by having a stop-loss before jumping into the play.

Look for a simple pattern called a consolidation pattern.

A consolidation is when a stock’s price moves between a repeated price range for an extended period of time.

In the chart above, Intel Corp (NASDAQ:INTC) formed a consolidation pattern between $12 and $15 a share from late November until today.

Every time Intel dropped to $12 a share, it went on to rally. And every time it hit $15 a share, it dropped.

To make money on this, simply buy shares when it hits $12 (the support) and hold until it hits $15 (the resistance). Then sell your shares at $15 and at the same time enter a short-sale (which allows you to profit as the stock price drops).

There is some risk though. Some stocks consolidate for a year – others for a month or two. But one day, it will begin a trend. So  always protect yourself with a stop-loss just in case the consolidation pattern breaks.