Backgrounder on my LR Trade

My LR trade (Part 1)

Trade Objective:  Buy on breakout of Darvas box above 9.32. Sell at target price based on increment if there  is sign of weakness.

Reasons for buying:

1) After bouncing off 61.8 % fibo retracement, it broke out of its box.

2) After failing to break through 38.2% fibo level, it retested the top box and bounced.

3) An RSI bullish divergence was spotted from June 30, 2015.

The trade:

I used the break of the initial Darvas box as a signal to buy. Therefore, I also used its failure to break its last box as a signal to sell.

I computed for increments of each box as a guide to the target prices of the next box.

On the final box (e), the target price was 10.96 (10.44 + .50 ). On July 27, the price reached a high of 10.82. This is short of the target of 10.96.


Upon establishing that high for the day as of 9:44 am , I computed for the 50 line for the day’s box — 50-line = (10.82+ 10.44)/2= 10.63. I used 10.63 as my guide for the day , assuming that  10.82 will not be broken.  If the price stays above the 50 line for the day, then it is strong and a continuation is likely the next day. If it is broken, I will take profits.

The price started to break down from 10.63 at 11:16 am.  I saw that as a sign of weakness.  So I double checked with the minutes chart to see if the price breakdown is supported by the RSI.  I realized that there had been a bearish divergence within 15 minutes of the open and the current cycle is a bearish convergence.

The price also breached SMA 50 on the 4 minute chart.


In addition, the high for the day , 10.82, was already 61.8% reverse fibonacci level, a tough level to break.


Reasons for selling:

1) Broke below the day’s 50-line

2) Price breakdown and SMA crossover on the 4 minute chart

3) Unable to penetrate 61.8% reverse Fibonacci level.

At the end of the day, the price dropped further to 10.38. If I held the stock until the end of the day, I still would have sold because the current box breached the top box of the previous box.