Coinbase stock didn’t plummet, but transactions still flowed in cash | Don’t ignore this chart!

As a trader, determining market highs (or lows) can be difficult and potentially risky. call to market top fundamentally It’s probably foolish to have strong stocks during a strong uptrend. However, for swing traders, taking advantage of such trades can often be tempting. This is especially true when technology is flashing red for an imminent decline.

Last week, Coinbase (COIN)’s technicals sent strong signals that a decline was imminent. The entire scenario is laid out in the article “Is Coinbase Stock Getting Closer to a Crater? Here’s One Way to Exploit It”.“. This setting worked, but only for the first target.

Here’s an update on what happened and a few words on risk management.

Chart 1. COINBASE daily chart for March 12. All indicators pointed to a possible decline in stock prices.Chart source: StockCharts.com. For educational purposes.

On March 12th the following facts were revealed:

• Relative Strength Index (RSI) Read “Overbought.”
• Chaykin Money Flow (CMF) There was an extreme weakness difference. As buying pressure fell below the 0 line, it turned into selling pressure.
• The pin bar pattern shows strong resistance at the bottom, indicating significant buying activity and the potential for multiple stop losses just below the bar.

The purpose of this transaction is Use stop loss areas For rapid, short-term declines where the first target is the middle Bollinger Band. (The second target will be at the previous resistance level).

result:

Chart 2. Coinbase daily chart. You’ve achieved your first goal, but should you keep the second?

The chart showing the results above has been enlarged to give you a closer look at what happened.

On the day of entering the trade, I could estimate that the risk-to-return for my first target would be (somewhat) close to 1:1, which is not a bad ratio.

With a short entry of $242.05, a stop loss of $271.65, and a target take of $219.95, the ratio comes out to a risk of 1.33 per unit (or $29.60 risk for a $22.10 profit). The amount of your potential loss or profit will depend on the size of your position (i.e. the number of shares you trade).

The most recent candle on the right reflects the strong rally on the day of the FOMC interest rate announcement. Markets soared after the Federal Reserve kept interest rates steady and reaffirmed three more cuts this year. COIN was also present.

As CMF moves above the zero line, buying pressure increases while volume continues to decline. “Shorts” who closed out their trades made significant, albeit small, short-term profits. Nonetheless, some may have partially liquidated their positions to capture the secondary target. So market sentiment may or may not be in their favor over the next few days as the Fed’s latest decision may or may not be in their favor.

conclusion

Overall, selling strong stocks based on technical readings can sometimes provide legitimate “mean reversion” opportunities, which some swing traders are likely to take advantage of. In this case, COIN reverted to its mean as measured by Bollinger Bands. And for riskier short-term trades like this, it’s best to target the low hanging fruit, so to speak, and take as much as you can. After all, this is what swing trading is all about.

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.