Here's a plan for a Short Trade of Bed Bath & Beyond ( BBBY ), in an attempt to capture the continuation breakout move of a Triple Top Pattern.
1 BBBY has been trading in a steady uptrend from Jun 2009 to Dec 2013, rising from $28.00s to $80.00s. However, the was broken subsequently on Apr 2014.
2 The breaking of the in 1 has evolved into a major Triple Top pattern, with price breaking out on Nov 13 2015. This breakout reached around 42.50s on Jan 28 2016 and paused for consolidation subsequently.
Using a conservative measure, it is projected that the theoretical minimum target of the Triple Top is around 37.50s. Also this is part of a very extended move of about 35.00 (77.50 - 42.50). This effectively tells us that BBBY is in a environment right now.
3 After hitting the lows of 42.50s, price proceeded to consolidate in the form of . As of Oct 14 2016, price has closed below the triangle continuation pattern support levels of 42.50s. There is a high potential that this triangle is Wave 2 of a greater 5 Wave pattern, hence I had marked out the corrective triangle waves A, B, C, D & E as shown. This indicates that the consolidation phase is over and price is likely to resume the move.
Projection: Given that the current trend is and price managed to close the week below the triangle of 42.50s, it is likely that price will proceed to breakout lower going forward.
Entry: Any time from now at a price no higher than 42.00 and no lower than 40.00.
Risk Management: We can size the short position based on an Initial Stop Loss above 47.00.
This Stop loss should be shifted to breakeven level, if price is able to breach the 40-39 zone. This will essentially minimize the risk of loss from this trade.
After which, an alert will be set on the red dotted arrow. This arrow states defines the expected minimum drop in price as time goes by. Therefore if price daily closes above this line, it indicates that price is not moving as bearishly expected hence the entire position should be closed.
Taking Profit: Personally I would prefer to take partial profits, expressed in percentage of the position, if price progresses to breach various whole figure prices. Higher percentages is allocated to the closer profit taking levels, as they have a higher chance of been hit.
50% of the profit to be taken at around $38.00, based on the Triple Top Price Target.
30% of the profit to be taken at around $33.00, based on price projection of the Triangle Consolidation Pattern.
15% of the profit to be taken at around $28.00, based to support buying observed during 2008-2009.
5% of the profit to be taken at around $23.00, as it is likely an 5 Wave pattern with an Extended wave 1.
This means the current breakout wave 3 is likely to move only as far as 61.80% of the Wave 1.
Triple Top Pattern Explained: http://www.tradersdaytrading.com/triple-top-pattern.html
Triangle Consolidation Pattern: http://thepatternsite.com/dt.html
1st Wave Extension Impulsive Waves: http://www.topratedforexbrokers.com/education-and-guides/extended-waves-types/
From the time the Plan was published, Price of BBBY has dropped 6%, from past $41.19 to 38.67 on 04 Nov close.
As mentioned in the Risk Management Section of the plan, we can execute the following:
a) Shift the Initial Stop Loss to breakeven level.
b) Set an alarm on the expected red trendline, using the amazing Alert feature on TradingView.
Reason to execute a) and b) is to minimize the risk of loss.
While we cannot control directly how much profit the market will allow us to make, we can control how much we allow the market to take from us. Executing a) and b) will minimize what the market can take away.
So far so good.
After, price had reached $38.67, price has recovered back the 6% drop to close at $41.16 on 09 Nov 2016.
More or less this price will have triggered the Stop that was shifted to break even level and close the position at no loss.
If price manages to recover back 6% drop after a breakout, it means the break out has a risk of failing, even though it has not breach the $42.50 resistance level.
Therefore, it is more prudent to close the position at no loss and see if there's a possibility for a re-entry.