Hi Folks,
I thought this would be a great time to do a quick trade review on a recent idea I posted on my public twitter! $CF Short selling swing trade!
As many of you already know I'm a technical trader. I look for technical patterns and characteristics to find low risk, high reward ideas. My vision of a great trade is one that continues to follow the technical characteristics that I've uncovered and works in a swift manner!
So, what caught my eye on this recent $CF Short trade I made? $CF recently found a high in the $110 price range and as the chart developed over time it turned into a head and shoulders topping pattern!
What does a Head and Shoulders pattern look like?
Basically, the stock makes a “left shoulder” usually out of a higher low in an uptrend then trades higher creating the “head” and finally bounces off the neckline creating the “right shoulder” and makes a lower high. The technical pattern triggers when the stock trades and closes below the neckline (which is technically a support area)
How do I measure a target?
In the above chart note the method of measurement. The technical move is measured from the neckline to the head peak “X”. Subtract “X” from the neckline value to get the downside target.
What type of market conditions make this an ideal technical trading pattern?
Bear Markets.
So, how did The Art of Trading, short $CF?
The Art of Trading used a relative strength day and a bump of the 20 EMA on the daily timeframe to take a short entry! I tweeted this chart to Art of Trading members when I noticed the development:
On June 14th the stock made a BIG move higher. Bumping into the 20 EMA on the daily timeframe. This spot was previous resistance. So, I thought since it made such a big move on no news this would be the ideal time to consider a short entry into the stock!
Shortly after I tweeted this:
The $94 area entry provided a nice risk to reward setup. Our buy stop was set at $100 with a downside target of $80 to $75. We eliminated the potential upside risk by taking the trade without hesitation as soon as it hit resistance. We anticipated the move. In bear markets you're better off selling strength and buying weakness then selling in the hole!
Other than the stock bumping into the 20EMA on the daily timeframe and the big up move on no news what other factors were considered in the entry?
On June 14th when $CF made a 9.70%+ move higher it also created a double top on the 5-minute time frame! When the stock failed to make a new high around 1PM I entered the position short at $94.30! Also take note of the lower higher the stock made around 2PM that day. The setup was strong!
So how did the trade develop from here?
The very next day (June 15th 2022) $CF made some nice downside follow through. It was also relatively weak in relation to the market. The perfect storm for this short side trade!
A couple of days later $CF also caught a downgrade! I tweeted this news to Art of Trading members first thing that morning! This news added more fuel to the fire!
The stock continued to breakdown, slowly but surely!
Where did you exit the trade?
Art of Trading members were alerted of an exit at $88.75 for a +6% gain!
The stock eventually took another big move down the very next day hitting our first downside target of $80. Although, in a bear market you must take gains quickly. Here was the reasoning for the exit on the trade here:
Even though we decided to take the +6% gain in $CF, unfortunately for us $CF did in fact end up breaking support and collapsing quickly to hit our original $80 target. That sort of thing will happen from time to time, especially in a bear market. In bear markets gains both on the long and short side can evaporate quickly so it important to book gains quickly due to the increased volatility. I just wanted to share the rationale behind booking the gain.
How has Art of Trading short term swing trading portfolio performed in 2022?
I hope you found this review helpful! Cheers and Happy Trading!
Art of Trading
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