The ABG (Asbury Automotive) Active Short Trade has hit the first target (T1 at 46.75) for a 9.7% gain since entry just a couple of weeks ago. Consider booking partial or full profits and/or lowering stops, depending on your trading plan. The reason that multiple targets are used on RSOTC is to accommodate various trading styles. Short-term, more active swing traders might prefer to book partial or full profits at one of the initial target levels or possibly micro-manage a position around these levels (sell/cover on the target & go long again/re-short on the bounce). Less active swing traders might choose to hold out for one or more of the higher (numerically) targets, shooting for larger gains while using larger stops.
When a trade setup is originally posted, the target levels are where I would expect a decent reaction (bounce and/or consolidation around that price level). However, the charts are dynamic… constantly changing and as such, the best time to evaluate whether a reaction off a target level is likely to occur is at the time, or just before, the trade reaches that target level. With trades based off the daily time frames, as the majority of trade ideas shared here are, I will typically reference the 60 minute chart to assess how likely a reaction off a price target will be. Things to look for are candlestick reversal patterns, divergences, capitulatory volume patterns, moving averages, etc… However, I also put a lot of weighting into the outlook for the broad markets and/or the sector that the trade belongs to. More often than not, if the broad market or a sector looks poised for a reversal (e.g.- a bounce off support) then the trade in question will follow suit. The point is that there are numerous technical variables that come into play when deciding when to book profits on a winning trade or continue to let it ride. It is also important to define one’s time frame & preferred targets for any trade before entering (failing to plan is planning to fail!). However, even the best thought out plans should always be open to revision, should the facts (i.e.- charts) change, which they often do.
With that being said, here are the previous & updated daily charts of ABG along with the 60 minute chart. I still favor a relatively minor bounce off T1 for two reasons: 1) The broad market (SPY) hit my first downside target yesterday and as expected, has bounced from there and might have a little more upside left. If & when the SPY takes out yesterday’s lows, I’d expect the selling in the broad market to accelerate with the SPY likely heading towards T2 (on the 2-hour chart) and most short trades following suit. The other reason 2) that I still favor a bounce off T1 on the ABG trade is the potential positive divergence in place on the 60 minute chart. I consider positive divergences on the MACD as “potential” when the indicator is making a higher low against prices making a lower low but only confirmed once the fast line crosses above the slow line on the MACD (bullish crossover).