Example Trade 1: Electronic Arts (ERTS)
The most requested thing that I get through my email is "Can you provide more trading examples?". Yes, I can! Here is an example of shorting a stock using the Traders Action Zone strategy (TAZ).
On June 15, the market was overbought. This means that I will be putting all my efforts into short setups.
Take a look at the following chart:
The 10 SMA is below the 30 EMA and Williams %R is overbought (higher than -20). That tells me that the market has a higher than average probability of falling. So, it is time to look for short setups.
I run a TAZ scan near the end of the trading day and I find ERTS:
This stock has rallied up into the Traders Action Zone and has formed a bearish engulfing pattern. Nice. But first I want to look at the hourly chart. And here it is:
The arrow is where I shorted it. But, the important thing on this chart is the area that I circled. That consolidation is what is going to protect me from a loss (my stop will go above that.) It would be very difficult for traders to move the price above that resistance level. Why? Because prior to that consolidation was a huge run-up. So, the traders that were long during that run-up are now faced with an important decision.
Should I sell?
And the answer is yes! They should sell because the previous momentum has stalled. So, this selling pressure is what moves the trade in my favor.
So, that is why I shorted ERTS. Swing trades don't always work out this well but many of them do.
You could make swing trading more difficult that this. But why?