Sears SHLD Teaches us an Aggressive Reversal Trading Lesson

Oct 5, 2016: 11:44 AM CST

If you’re a new trader interested in Reversal Strategies, SHLD has a powerful lesson example for you.

Let’s study the setup and plot the trade as price continues its expected, tradable reversal off the lows.

Sears Holding (SHLD) developed support a the $11.00 per share level.

The FIRST thing you should do in planning a reversal trade is locate a potential turning point or reversal level.

Note how price formed a resistance (reversal) level near $18.00 and a support level at $11.00.

With that in mind, we look to a Positive Momentum Divergence AT the support level.

Positive divergences often precede price reversals – especially at key pivot levels like this.

If we take it one step further, we also see a series of reversal candles at the $11.00 per share pivot.

To sum, we have a key support level, a positive divergence, and reversal candles.

That’s often enough to risk your capital for a tight stop (under $10.50) potential reversal opportunity.

If you want to go deeper into the picture, you can view the intraday chart such as the Hourly Frame:

Intraday or “Lower Timeframe” Charts give us more information than a Daily Chart because we can “step inside” the price action – and see additional indicator signals.

In this case, we can see how the positive momentum divergence built under price as price traded into the $11.00 per share “Higher Timeframe” pivot level.

Aggressive traders can buy AS price trades into $11.00’s support.

Other less-aggressive traders can buy on pullbacks as price travels higher – which is what’s happening now.

Upper targets include the Fibonacci Levels and potentially as high as the $18.00 resistance ceiling.

Keep studying this example and add it to your growing trading knowledge-base.

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Corey Rosenbloom, CMT

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2 Responses to “Sears SHLD Teaches us an Aggressive Reversal Trading Lesson”

  1. Intelligent Trend Follower Says:

    Thanks for another great trading lesson. I think the advice to zoom in on the hourly chart for confirmation is a great idea and makes managing trade entries and exits much easier.

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