Apple Inc - Oversold and Ready to Rally to Resistance (to Short)

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Apple             has been acting a bit rotten lately. Why? Well, for starters, it didn't act so well on the release of its latest iPhone 6s when it gapped up and then closed down on the day. Technically speaking, that's a sign that buyers were already crowded in the stock and were ready to sell on the good news. That pattern is also called a "key reversal" which is a gap-open higher, followed by a lower close. It is usually bearish for the next 3-5 bars, which was the case this time.

Sometimes that's just what happens, the good news gets discounted and then there are net-sellers or at the margin, there are more sellers than buyers, especially from stop-orders***.

Disregard if you know what a stop order is: (***Sell stop orders are orders to sell out of long positions, or to sell short if prices fall. Traders decide in advance to sell at lower prices to protect themselves from holding on during a larger decline. Stop loss orders are a lot like a life-boat. Sometimes there are a lot of false-alarms and other times it pays off and saves your financial life).

You can see that the Key Reversal happened right around the zone I have drawn in a white box where 8 days traded, the most frequent level of that box. That 8-day box set up a drop of the same size from that 8-day mode, a process I call "Time At Mode" and it allows you to project both time and price. In this case it has already reached the price objective.

Now it appears that AAPL             has reached a healthy level of oversold and that there is a chance for a rebound back to the frequent-trading level at 112-115 from 109.46 last.

I would like to trade both sides of this setup: Going long here targeting 112.50 and then selling short and targeting 107-103.

Time will tell. I'll update this chart as the trade progresses.

Tim 12:41PM EST 10/2/2015 109.46 last.

Comment: I'm shorting right here despite it being 3 cents away from the targeted entry price. The long position worked nicely for me because I didn't follow exactly what I have written here. I see that if you had followed what is written here that you would have been stopped out for a small loss. I don't have an easy way to re-reference this trade to update it. So, I'm getting short here ahead of the weekend when the "Steve Jobs" movie is coming out.
Comment: A few more comments - After today the mode will have dropped from 8 days at 114 down to 9 days at 110. So, what we need to see on Monday is for the price to go right back down under 110 to confirm that this mode just dropped 4 points on this downtrend. This is a key point. Once AAPL is under 110, it is an even even more bearish signal.
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Thanks Tim, a good lesson about managing risks . Traders must learn that trading with different stop losses should use different Lots when they risk the same capital.

Thanks for your view on apple, I posted my view few days back on apple and plotted same levels. Your analysis saying the same, is conformation for me and confidence boosting :-) thanks again.
+1 Reply
timwest dhananjay.d.joshi
Your chart has good levels. All you need is to know how much you will risk when you take action at each level. Position size and stop loss levels determine how much "gut check" you have to have to hold on to the position.

For example: Let's say you have a $20,000 account and you want to risk 1% of your capital on each trade idea. In this case, your risk is $200.
Ask yourself: How many shares do you buy at 112 on your first buy level there to risk $200? How wide is the stop? Is it 110 stop? If so, you'd buy 100 shares and risk 2 points or $200. But that is more than half of your capital since 100 shares x $112/sh = $11,200. Either way, that is the position size. Once you get stopped out at $110. You can try again at $108 and use a $106 stop and once again you'd be able to buy 100 shares since the stop is $2 away an you have $200 to risk.

Alternatively, if your stop is at $106, you could wait to buy until $107 and then your stop would only be $1 away, then you could buy 200 shares, which is more than all of your capital in one trade. But the risk of $200 would be accurate. And in this case, if you filled at $107, your return now is $700 instead of $250 because you would have bought more stock at a lower level.

Think about these things - risk - stop - position size and the entry/exit techniques will be much more clear.


+4 Reply

This part is taken care by zones width, target is next zone and stop is below the zone. Hence i will start thinking and mentioning the risk to reward ratio also.

Thanks a lot my friend.
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