I alerted BBY Puts earlier today and wanted to share my reasoning for this trade and give you a little breakdown of the chart and what I was looking at prior to entering the trade. Let's jump in!
The chart above is the 20 day 1 hour chart. I generally like to look at this chart combined with other time frames late in the day when looking for swings. This time frame offers a long enough time frame to allow for a continuation the next day and is generally good for finding overnight trades. (Barring market craziness, which these days is more often than not)
I like to look for some weakness in a stock that has had a big move recently to give me confidence in this pulling back a bit. For me, looking at the Stochastics is a good way to view this information as I can tell when weakness is setting in when the Stochastics curl to the downside. I also like using Moving Averages, in this case I am using Exponential Moving Averages. Generally when moving averages are far apart they tend to work their way back to each other. In this case all the EMAs were under the price of the stock. So as you can see, Stochastics pointing down, and EMAs under the stock price, thats 2 signs pointing towards this stock price falling. But for me, I have a rule of needing at least 3 reasons why to enter a trade before actually entering it. So we got 2 out of 3, whats next?
After reviewing the 1 hour chart and determining this trade looked good I needed to find an entry for the trade. In comes the 5 minute chart. So on this chart you can see a Resistance Point I have on the chart, as you can see that point isn't all that strong but I was already pretty sure I was getting in this trade based off the 1 hour chart from above. So really I was just using this point as a guide for an entry, I wasn't strictly trading off that Resistance point. So what I was looking for to enter the trade was I wanted to see the stock break below that point on increased volume, that would have indicated to me that sellers were coming late in the day. As you can see we got the resistance break and at the bottom you can see how the volume increased.
We got a nice move into close today and are up about 20% on the trade. Looks good to continue into tomorrow!
Hope you got something out of this post and learned a little bit. Feel free to ask questions and leave a comment below!