Trader Janice

Trading My Way to Financial Independence
Home Depot (HD) Trade

Home Depot (HD) Trade

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What Does the Market Look Like?

As always, I look at what the market is doing. Today, it looks like SPX is bouncing off resistance so I’m looking for short trades.

6 month SPX chart

Finding a Trade

HD is on my short watchlist and it meets all my requirements for a short trade. It follows the market as seen in the charts below, and its primary trend is down.

Comparison 6 month daily chart of SPX and HD

The 6 month daily chart shows HD has been making lower highs and lower lows, and earnings isn’t coming up any time soon.

HD 6 month daily chart

The 3 year weekly chart shows an area of resistance, but it’s well below the current price, and most likely, I’ll have exited the trade before it even reaches this level.

I took the current red day as a confirmation that the market is reversing so I sold HD towards the end of the trading day at $169.13

Managing the Trade

Since it seems to be staying below the 50 day moving average, I put my stop just above it at $178.20.

HD chart with trading buy stop

Here’s my calculation for the number of positions.

$178.20 – $169.13 = $9.07

I’m willing to risk about $250 per trade which gives me 27 shares at my sell price.

$250 / $9.07 = 27

I shorted an even 30 shares so if I hit my stop, I’ll lose about $272.

Results

Gah! My first trade of the year and it’s a losing one. The market wasn’t reversing like I thought. It went up the next two days, hit my stop, and I bought back my shares at $178.78 for a loss of $289.50.

Could I have avoided this? Looking at the chart, there wasn’t really a clear reversal signal. There was a doji, then a bullish engulfing candle, followed by a big red candle at which point I shorted the shares at the end of the day.

Of course, mistakes are so clearly seen in hindsight. And if the stock had continued on a downtrend like I thought it would, I’d assume I read the reversal signal correctly.

So what’s the takeaway? I’m going to look for clear reversal signals on my next trade.

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