Today, I have gone short of Rockhopper Exploration RKH:LSE, for what I hope will be a quick in and out trade. The price has already hit my first target at 351 for a RRR of 1:1.
So....why short a share that has had such a strong move up? The share has had a good run recently but appears to be stalling at the Fibonacci .618 level of a much larger swing on the weekly chart.
The price action appears to be forming a descending triangle pattern and the price has rejected the top side four times now. (It could also be creating a symmetrical triangle which could be a continuation pattern and would not be good for my trade). There have been two strong, above average volume days in March and they have both been down days. I take this as a bearish implication. In cases like this I like to enter as near to the top of the traingle as possible. In this case, if the trade is favourable, I can be out with a 2:1 RRR before the price hits the bottom of the triangle, which I suspect will be an area of strong resistance. (It could also be the neckline of a head and shoulders pattern...but that's another story!) Furthermore...there is divergence between price and momentum on MACD . There is also a potential AB=CD pattern completing at the .618 retracement of the previous swing. This is well below my target and I will monitor price action as the trade proceeds. In any event, I have applied my money management strategy and the trade will play itself out.
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