For some of my followers, it came as a surprise that I would trade a stock that is beaten down as badly as $EWZ was (and is). These people are justified in their surprise, I don’t trade these dumpster dive trades often at all. I don’t think they yield the best return or have the highest potential for success. The reason why I actually decided to take this trade was simply because, withholding the negatives to the strategy, I want(ed) to diversify my strategy to capture more of the movements in the market.
There were a handful of reasons I decided to take this stock in particular:
1. The stock was on MAJOR long term support
2. The stock was extended below the lower Bollinger Band
3. The stock was forming a hammer on the daily chart
4. The volume pattern associated with this hammer pattern was enormous
5. Risk was easily defined (below the hammer candle)
The combination of these very basic facts of the chart of $EWZ gave enough warrant for me to purchase the stock and to diversify my strategies, something I mentioned I wanted to do in the last post I wrote.
My purchase price was 28.50, my sell was at 29.09. The net profit was not a lot, but the trade confirmed the validity of the strategy. The sell price was selected because it was near the end of the day (on Wednesday 7/29), and coming into a down-sloping 8 ema paired with the fact that the stock trend itself has been horrendous the past few months.
I will continue to monitor this stock over the next few days with the eye for another consolidation period below the moving average(s), which will create another defined stop-loss area (below the recent consolidation).