I need a little bit of help on this chart from some experienced chart analysts... I went into a short position swing trade on Thursday with MCDTA as it peaked at the top of it's established downward channel expecting it to continue to fall this coming week. Also, the shareholders are voting on this company being bought out by BRCD on 1/25 which I thought would also help move the price down. Instead, Friday delivers a bullish engulfing stick and shoots right back up near the top trend line. Do I need to get out of this short position or was this just a fluke? From what I hear, alot of people were covering shorts on Friday and maybe that lead to the run up in price. Any thoughts or opinions on what to expect from MCDTA in the early part of this coming week? Thanks in advance for your help!
Your "established downward channel" is arbitrarily drawn. I believe you're "seeing" or wanting to see something that really isn't there........yet. It appears you drew the lower channel line off of a prior high price. That's bad technique. You should wait for two lower-lows to be put in place before drawing the lower channel line and also not assume it'll be parallel to the upper channel line.
Thanks man! You are exactly right and it makes sense why I should not do that. I am new to the trading world and trade with relatively low capital compared to what most of you guys do so I don't have a lot to lose. I am just glad there is a place I can come where people will help me learn from my mistakes. Now (after the fact), my mistake seems obvious. I am not quite sure why I drew a lower trend line with just one "lower low." I guess I got carried away with the parallel lines. On a side note, isn't it correct that a majority of equities, when facing a potential buy out, see their price fall? I know this is more of a fundamental concept than techincal, but any advise would help.
Hey, I'm a noob, too. Do you necessarily need a bottom to the channel in this case? A high and subsequent re-high have been established, so we know that's resistance... is it a safe bet to short from here if you're only planning on a small gain? PS. I'd look up the current chart myself but i don't know what MCDTA is.
=================== AcAnt; Some other timely tips; almost always a genuine takeover target rises in price, but the buyer like BRCD usually falls a bit. Carl Ichan takeover target did fall, the auto parts place; but once again it usally rises mostly .Like if a buyer with enough cash or credit really tries to buy your home, are you likely to reduce the price???Especially with most sellers getting more than initial offer . Markets are like that .
There's no point to looking up the chart now because MCDTA is no longer listed. McData (A Class MCDT, B Class MCDTA) was bought by Brocade in an all stock transaction that closed on 1/29. Each MCDTA share was worth 0.75 shares of BRCD, so MCDTA just reflected moves in BCRD. Not many equities drop in price on a buyout because the offer is always higher than the current share price.
FWIW, here is how I would have annotated the channels had I been trading this particular stock. Also, if you believe in the price/volume relationship (jack hershey/ spydertrader stuff is controversial in these parts I hear), you would have known not to short at the point you mentioned because the volume "gaussians" still show that the dominant trend is UP, and that the nondominant retraces go DOWN. The down bar you shorted on, you have no idea what it will do the next day, it could just be retracing, and finding it's "point three" before it's next dominant traverse upwards. Nothing has "signaled" you that a change in direction has occurred. Also, you would have originally bought the stock LONG somewhere in the red circle, and you'd probably still be holding. Just my .02