PNM gapped down on 11th Feb 2008.
The first candle was wide range bearish red closing near its lows. The 2nd candle was much a narrow range by comparison. It was a dragonflyish candle with longish wick, which indicated bearishness. It was also right at extreme end of the first candle near its lows.
This was trigger bar with order to sell if price exceeded the two bar low. This is not a pattern I trade that often , but when it occurs it does seem to offer quick rewards.
Entry: 15.18 , Stop: 15.72
Fib Ext: 13.54
1R= 14.64, 2R= 14.10, 3R= 13.56
The 3rd candle fell sharply and filled both my partial orders at 14.10 and at 13.54.
Getting a few trades like this, not every day, but say a couple a week will make a big difference to your p/l figures.
You may notice the second arrow on the chart, this is a possible second entry as the stock retraced up towards the OR. The candle arrowed is a narrow range red candle and it bounced back down from the OR low, indicating reluctance of the price to get past into the OR. I didn't take that trade though. More of a mental thing really, I tend not to trade the same stock more than once...maybe its a feeling that it might bite back since I dared to profit from it the first time :-)
I'm sure some psychologists may have a view on this.