DIS daily chart gave two good trading opportunities one short and one long in the last 10 trading days using topping/reversing price candles along with the RSI indicator.

See the orange arrows for the short trade and the green arrows for the long trade.

When RSI reaches 70 and higher it is considered overbought. Never act on an RSI signal alone you must see the price action in the candle pattern on the chart first before the signal can be traded. Overbought and oversold RSI can stay that way a very long time.  One of many reasons I often say ‘See It First’.

Orange Arrow #1 RSI reaches 70 on September 12, 2013.

See the filled dark black candle off an uptrend that developed over multiple trading days this is an example of a topping candle. Not all filled black candles are topping candles they must be preceded by a multiple day uptrend. Many filled black candles are just noise within a consolidation.

Orange Arrow #2 once 70RSI was reached, it took 2 more days before the topping candle developed on Sept 16, 2013.  On this date the open = $67.32, the high of the day = $67.65, the low = $66.88, and the close = $66.94. The filled black candle/topping candle developed due to the close being lower than the open.  You must wait for near the end of the day just before close to make the short trade to confirm the filled black candle.  The stop/buy to cover was a close higher than the $67.65 high of day or one could use the stop of a close above $67.89 another recent high depending on risk management strategy. Entry = $66.94, target = $64.00 the trade has a $0.71-$0.95 risk for a $2.94 to per share reward.

 

Orange Arrow #1 and #2 show you a sell signal and an opportunity to short. As the short took place and developed the 70RSI remained and the gap down on September 19, 2013 confirmed the short. This gap down offered a second possible short entry if the black topping candle was not enough for you. Waiting for this gap down created higher risk and less reward. My preferred entry $66.94 the black filled candle after a long uptrend at the end of the day with an oversold RSI reading and low risk.

As the short progresses the RSI unwinds off of overbought and approaches the 50 level. Price heads toward the 50 ma and a former gap area, both are likely levels of support. Buy to cover stops have been changed as the short trade progresses from $67.65 to $66.50 to $65.85 insuring a profitable trade. If you use a ladder out strategy these areas are possible rungs of the ladder. The short trade is closed with the doji on 9-25-13 as the doji shows indecision and reversal likely $64.45. The second chance to close the trade was on 9-26-13 when price went above the doji close. Doji’s are best traded with confirmation so profit on the short would be taken at a price of $64.46 to $64.50 the following trading day.

Not bad, $64.45 is close to the original target of $64.00.

Green Arrow #3 RSI is no longer overbought and has worked its way back to the 50 level. This is healthy and you want to see the 50 level hold for a better chance of a new uptrend to start.

Green Arrow #4 the doji where the short was covered.  It is time to reverse the trade and watch for an entry long, the doji showing a potential reversing candle.  Again a doji shows indecision and is safely traded once confirmed by the next price candle.  Entry next day is a price over $64.45 placing buy order in the machine just over $64.45. Two potential stops = a bit below the low of day $64.20 on 9-25-13 the day the doji printed or a bit below the 50ma = $63.88. Target recent highs $67-$68 Risk $0.30-$0.70; reward $2.50+ per share.

The long trade is yet to play out.  The trade will have the best chances if the RSI continues to hold the 50 level and begins to climb. Price will need to continue to remain above the stop as it is raised during the trade, some laddering out may take place.  It goes without saying that the overall market must cooperate and the $DIS long trade has a great chance of playing out and delivering a satisfactory profit with minimal risk.

Wishing all good planning with great risk management, SunriseTrader