Entries & Exits: Visits to 16 Trading Rooms (Wiley Trading) by Elder Dr. Alexander

Author:Elder, Dr. Alexander [Elder, Dr. Alexander]
Language: eng
Format: mobi
Publisher: Wiley
Published: 2006-04-27T16:00:00+00:00

Short KMRT

Short 10/22/2004 @ $89.79

Covered 10/27/2004 @ $91.59

Loss = $1.80 per share

TRADE 2—ENTRY COMMENT

Several months had elapsed after my interview with Kerry before I wrote this review of his trade. When I tried to plot KMRT in my TradeStation, I got nothing, and TC2005 also gave me a blank. In the months since our interview, Kmart had been taken over by Sears. Fortunately, a friend had downloaded a database from MetaStock before the takeover, and he plotted these charts for me in his program. This is why they look slightly different from my other charts. This slight visual difference confirms the point I’ve already made—the specific brand of software makes little difference for traders, as long as you use a serious toolbox.

The weekly chart shows a major bearish divergence between prices and MACD-Histogram. The October top is higher than the one in July, but the indicator is tracing a lower second top. Even more ominously, MACD Lines are tracing a rarely seen double top with a bearish divergence. The right-most bar tried breaking out to a new high but failed. The Impulse system is blue, allowing us to short.

Trades based on bearish divergences tend to offer good reward-to-risk ratios. Set the profit target on the weekly chart—it is reasonable to expect that prices will fall back into their value zone on the weeklies. Set the stop on the daily chart—prices are not supposed to rise to a new high after a bearish divergence. With KMRT trading near 90, a profit target near 80, and a stop near 93, we have a better than 3:1 reward-to-risk ratio.

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