Nothing close to a play or lean today.
After posting my swing trade this morning I received several emails
concerning my method for finding the stocks to make the trades.
The method I use is a mean reversion method. Which means I am looking to buy
stocks that are extremely oversold in the short run.
In addition I try to cordinate the purchase with what appears to be a high likelyhood of a turnaround in the markets. So if the market is overbought and due
for a pull back I usually dont place these trades.
But this morning when we get a large gap down in a correction that is in day 3 it creates an excellent opportunity to look for these types of trades.
The major risk is 1. No stop loss since most studies seem to indicate that mean reversions systems lose equity when used with stop losses. 2. What traders call a “black swan” event. ie….bankruptcy or something major that would cause a huge downswing in the price.
So…its important to create a universe of stocks to look at that are fundamentally sound. Not an easy task.
My thoughts on the hd trade is if we get a gap up thurs…..to sell. If not reevaluate thurs morning. Or if we get a large turnaround today consider selling at the end of the day. A big turnaround would be a positive close of over 100 pts in the dow.
Typically the gains on these trades range from 2 to 10 percent in a day or two.
Meanwhile as I am posting this hd is trading at 24.80 up almost 2.5 percent from our buy an hour ago. A good sign since the market is pretty much where it was when we placed the trade.
If anyone has any other questions drop me an email.