Will This Be 8 for 8?

What does a trading range look like? Sometimes they just stand out on charts. For example, here is an 18-month chart of Home Depot stock. Even if you're new to chart analysis, and don't know an exhaustive gap from a harami, you would likely look at this chart and declare that HD is in a trading range.

If you are a long-term-minded investor, you will likely pass on this stock and go find a better investment. But if you are a short-term trader (you can be both), you smile when you find a chart like this.

Before I spend any more time evaluating near term trading opportunities on this stock, I want to consider the ‘seasonal' pattern of this stocks – the historical track record of movements this time of year. If the stock has a strong pattern of upside breakouts this time of year, I do not want to trade it as a trading range stock. But if it doesn't have a record of regular institutional accumulation, then I start to get excited.

Looking at HD's tendency to move over the next several weeks, from a starting point of this coming Monday, I see a virtual sideways average movement.

Looking at the percentage of times HD gains versus drops, I see that the ‘odds' stay around 50-50 (50%) of a move in either direction. These charts do not suggest institutions may become players in the stock if there is some other reason, say an unusually good (or bad) earnings release. But there is no evidence they accumulate (or sell off) the stock based on what time of year it is.

Back to the daily chart, this time adding the Stochastics Oscillator to it. Let's investigate trading Stochastics ‘sell signals' (see Stockcharts.com – ChartSchool: Stochastic Oscillator).

Basically, I'm looking at when the Stochastic is above the 80 overbought line and the %K line crosses below the %D line. If the %K line then crosses below the 80 overbought line, I'll consider this a short HD stock trade entry. In just the past year, there have been 7 setups like this (you can't be exact – you have to sometimes be a referee and call a Stochastics buy and sell signal if it is close to the requirements, like in late April when %K/%D got to only 79 before turning down).

I identified the open following the trading day where the %K crossed below the 80 level, the high after that open (which would represent the worst-case drawdown on a short stock trade), and the lowest low after that open (which would represent the best possible gain on a short trade), and threw the numbers into a spreadsheet.

Now in an actual trading environment, one would have to get out at exactly the lowest point after trade entry to capture the max gains in the following charts, but we get an idea of how well this ‘system' would work on HD, when it is in a trading range. The numbers are:

Well, this would have made a good system. Decent gains each time with very low drawdowns.

HD's Stochastics have just formed a another crossover while above the 80 overbought level. Once the %K falls below 80, this ‘system' could very well produce another good trade.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2014 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

The content on any of Market Tamer websites, products, or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options, and other securities involve risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities are not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf). The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

Related Posts

 

MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.