McKesson Corporation (MCK) was the third bearish reversal trade I did together with ACOR and ABT. It is the most profitable one indeed; I managed to pocket a profit of 117% in 10 trading days. Spotted a “Dark Cloud Cover” bearish reversal candlestick formation on my screener on 15 Jan 08 which has gapped up in the stock price three months ago and was making higher highs since then.
Reasons for entry
There was a strong negative divergence shown on the MACD Histogram, the strongest amount the three (ACOR, ABT and MCK) and the possibility of closing the gap.
MACD Histogram, the SMA 1 (green line) is about to cross the SMA 5 (pink line), again signaling a bearish reversal.
William %R is high in the over bought region, giving plenty of room to fall.
The stock price was at all time high at $68.50 acting as resistance, forming a possible double top.
The reversal candlestick was spotted on 15 Jan 08 before the market opens.
Entry Signal set at, stock price fall $0.20 below $66.70, the low of the bearish candlestick.
As usual, after the first trading hour I bought Mar 65 Put @ $2.30, stop loss set at $1.20, 50% of options value.
On the 28 Jan, Monday, after the stock has dropped $6.50, a “Doji” was seen in the chart. A “Doji” represents uncertainty, signaling a possible turn around. William %R is touching the floor sending me a second exit signal.
Exit Plan is to get out immediately when the price is above Monday’s high.
The stock rally on yesterday’s open and hit the exit signal at about 50 mins after opens and I managed to get out at $5.00 making a profit of $2.70 or 117%.
The problem with many traders is too much greed, always wanted more and not decisive when getting out. Discipline and following your trading plan is crucial in achieving consistence profits.
“The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable” – Warren Buffett
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Ronald Lee is a street smart professional Network Marketing entrepreneur, a self-taught investor/trader, a trainer, an author and a blogger. His vast experience in the network marketing business and passion in stock options investment have motivated him to write books on these subjects. To complement the information that is available in his books, he provides contact coaching lessons on US stock options trading; sharing his trading experiences and highlighting pitfalls to avoid....
I love this quota that you put on this article.
“The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable”
In options market, there are full of people who are greedy and every will “ask for more”. Thus, there would be higher chances of getting their own pocket burned.