TSCO has been in a general downtrend since 2007. More recently, its share price has rebounded from a low of 139.00p set in January 2016 to its present price of 213.2p. Its most recent rally, which began in August 2016, is showing signs that is losing pace and that a correction is due.
Long Daily Chart
Unlike SBRY and LAND, this stock does not rock back and forth inside its price channel, but tends to trend steadily that can cause it to trade above or below its 22-day EMA for long stretches of time. Reversals tend to be preceded by long wick candles, areas of congestion that signal changes in price momentum, and morning and evening star candle patterns.
Volume lately has been in a typical range for this stock. I note that volume has tapered off quite a bit since the large gap up that took place on 5 October 2016. This may signal that price will soon fall back to its 22-day EMA.
Short Daily Chart
TSCO’s price surge appears to have come to a halt. A bearish divergence has developed in both force index and in MACD histogram. MACD also appears to be forming a rounding top. The stock is also currently trading at the top of its price channel, although that on its own is a much less reliable indicator than it is for other stocks I’ve traded.
I will short this stock at its open price on 2.November 2016. I will regard a forceful uptick or series of upticks to the 220p resistance level as a clear indication that I’ve picked the wrong direction and will cover my position. I do not expect a large massive downward price move. I will provisionally place a limit order to cover at the current 22-day EMA (204.2p) . I will close the trade at the open on whatever day my EOD analysis suggests would be prudent.
Entry: I shorted this stock on 2.10.16 at 211p (£2.11).
Exit – 3.Nov.16
After having gotten into this trade, I began to have second thoughts about it and decided to cash out rather than run what I felt was a risk of taking a loss. I covered my short position at 210p (£2.10) for a gross profit of +0.47%.
I broke one of my rules on this trade. I watched this stock’s price go up and down during the day on 3 November, got nervous, lost faith in my analysis and decided to cover my position. I am annoyed at myself for doing this. My analysis is based on EOD charts, not intraday charts, so with the exception of major gaps against me or some other case of extreme price movement, my trading decisions need to be based on EOD charts. As the chart above shows, if I had stuck to my strategy I’d have covered this position at 204.2 for a gross profit of 3.22% rather than 0.47%. This chart shows that even at the end of the day on 3 November, none of the worries I’d had as I fixated on the price ticker that a rally might materialize were warranted.
I am not pleased with how I handled this trade. I did make a little money on it, but I should have made far more. I must improve my trading discipline in the future and not deviate from my strategy.