From time to time, I would like to give readers a heads up on potential trading opportunities. Before considering any trades that I might outline in Chart School, always remember that you must decide for yourself if you like the trade.
A key factor in making that decision will be coming up with which side of the trade you believe gives you the highest probability trade. In other words, do you like the short side of the market, or do you like the long side? You don’t necessarily have “know” what side to be on, but it certainly helps to take a stance. So, if you haven’t thought about it, review the overall indices themselves. Take a look at the S&P 500 for example. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
One trading opportunity that I’d like to review today is that of PLCE (The Children’s Place Retail Stores). Before discussing, please review the 1 yr. chart of PLCE that I have outlined below:
If you have read any of my previous Chart School newsletters, you will already know that I believe the simplest to be the best. In my experience with other traders and students that I have coached to trade, the ones that kept it the simplest always seemed to do better than others who may have overcomplicated things a bit.
This simplicity is on full display when you look at the chart of PLCE above. PLCE has created a very strong resistance level at $50. At the same time, PLCE has formed a significant support level at $40. This is a very simple chart pattern that you may be familiar with: A Rectangle. This pattern creates very clear, defined trading opportunities.
The Tale of the Tape: PLCE (The Children’s Place Retail Stores) has formed a rectangle price pattern between $40 and $50. If PLCE were to break above the $50 resistance, entering a long position could be advised. A more aggressive trade could be to enter a short position when PLCE approaches the $50 resistance. However, if PLCE pulls back down to $40, you could also enter a long position in expectation of a bounce. If the $40 support were to break, a short position could be entered.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT