I wanted to share a huge missed opportunity in my trades that happened recently. I've been trading ACH in and out, and making very good profits, but when the huge pullback the two weeks ago happened, I backed away. For the last few days, I was following ACH again, watching the rounded top chart pattern forming. Something told me that this was not a bearish signal as it usually is, and I thought about putting a limit buy at $35, at the where the last resistance formed mid-May.
As you can see in the chart, the stock exploded after it hit $35, hitting a high of $50 in less time than I could react to. It had a one day gain of +15%. I was crushed that I didn't seize the opportunity.
My mistake is obvious to me now. The rounded top happens on the chart from mid-June to mid-August. Rounded tops indicate that buying pressure dissipates as the price climbs, then people lose confidence and get out as it crosses the peak and starts falling. The volume on a real rounded top is the shape of the top but inverted, meaning that the volume is lowest at the high point of the price.
Look at the chart. The volume was rising. The drop in price was probably due to other factors, such as the global pullback. The moment I should have known was August 6th when the price fell but the volume kept trending up. People wanted ACH, they had interest, they were fighting the price. And then it happened: on August 16th, the price hit a low but closed above the last high on May 14th. A reversal was coming. The price had hit a previous top at $35, where the price exploded afterwards into the beginning of the rounded top, but it closed above at $37! What was I thinking!
Even more damning was the fact that when it hit that $35 resistance, it crossed below the lower Bollinger Band (red lines). Normally, I consider this to be a moderately bullish signal that the price is at a statistical low, but what made this one special was how the top BB band did not rise. Usually, BB bands diverge (top band rises, low band falls) when volatility increases. This wasn't it.
Anyways, looking at it even closer the yesterday, I realized that from Aprl to June there was a rising double top kinda thing that I should have realized was a sign that this stock had a lot of dedicated, inspired buyers (like myself, silly!). With aluminum being one of the worst performing sectors anyways, ACH was something I should have stuck with, not just traded. Profit is sometimes found in the faith.