Doji Sell Example and Lessons in Whirlpool WHR

Jul 21, 2009: 12:18 AM CST

A reader asked me a very interesting question this evening that I wanted to discuss with you all (with permission).

The question was in regards to a perceived sell signal in Whirlpool Corp (WHR) due to a doji candle after a large run-up.  The question was “Why did the doji fail?”  Let’s take a look:

The trader shorted Whirlpool on Friday near the close, near certain that a pullback retracement would occur to take price down, thus resulting in a profit.  He was upset with today’s 2% rise in the stock and he’s worried if he should go ahead and exit.

Now, I don’t give specific trading advice, so I’ll keep this in educational terms. Remember never to make a trading decision based on a single candlestick – always look for confirmation or additional reasons that support the initial bias… and have an open mind to what the price/chart is telling you.

Also, never expect something *has* to happen in the market – if we knew what was going to happen (ie, every doji results in a trend reversal), then we not only would not use stop-losses, but would have no need for money management (we would just put our whole account in with options and profit richly from foreknowledge).

Let me first say that the sell signal is still valid as long as we’re below the high of the doji, and the stop should be whatever distance you feel reasonable (as in, not one penny above the high at $56.50, but probably less than $3.00 above the high depending on your timeframe and risk tolerance/position sizing, etc).

Also, don’t expect price to move suddenly in your direction the second you initiate a position – give the market a little ‘wiggle room’ and never expect perfection either in your entries or exits – it helps take the stress/pressure off.

Be sure to take into account the broader trend, which is clearly up, and realize that this is a counter-trend ‘scalp’ trade which bucks the trend – not saying you can’t make money counter-trend, but it’s more difficult and requires more precision.

Here’s what a trader misses when looking at a single candlestick doji:  Price is in an uptrend, and momentum has registered a new high along with a fresh new high for 2009.  Volume has picked up, so we are seeing plenty of confirmation of higher prices, which suggests higher prices are yet to come (following a retracement).

Yes, odds favor a retracement swing down to test support off this level, but there are powerful bullish forces driving this particular stock higher.  On the weekly chart, we see the $55 level is prior support, which could play as current resistance.

However, other than this fact, we are seeing far more bullish evidence than bearish… and a single candle is not going to overcome that.  Otherwise, it was a very good question worth sharing!

Corey Rosenbloom, CMT
Afraid to Trade.com

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6 Comments

6 Responses to “Doji Sell Example and Lessons in Whirlpool WHR”

  1. lucks Says:

    Good explanation.Though I already knew what you have written, I loved reading it for the systematic way it has been written

  2. inegoveritas Says:

    That candle looks more like a shooting star than a doji. Also it'd be interesting to undertand about the fundamentals out there which could've triggered this spike in price. Furthermore a little fib extension analysis could tell us what the bulls exactly have on their radar. Keep up the good work. I like your blog very much. IEV.

  3. Sell Signal Aftermath in Whirlpool WHR | Afraid to Trade.com Blog Says:

    […] // On Monday evening, I highlighted a reader’s question on Whirlpool (WHR) in the post “Doji Sell Example in Whirlpool.”  The question was “I got short off a doji but price kept rising – what […]

  4. Sell Signal Aftermath in Whirlpool WHR | Penny Stock Trading System Blog Says:

    […] Monday evening, I highlighted a reader’s question on Whirlpool (WHR) in the post “Doji Sell Example in Whirlpool.”  The question was “I got short off a doji but price kept rising – what […]

  5. NicholasK Says:

    My advice for the stock owner is to sell because of the economical instability produced the global crisis. You can't be certain of anything today and especially stocks. I would recommend trying to invest in other areas such as real estate.
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  6. NicholasK Says:

    My advice for the stock owner is to sell because of the economical instability produced the global crisis. You can't be certain of anything today and especially stocks. I would recommend trying to invest in other areas such as real estate.
    _______________________________________________
    Appliance Parts