Planning a Short Trip

 | Jun 21, 2013 | 10:33 AM EDT
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Considering that we could see a deeper downside correction in the stock indices, how about a short setup in Expedia (EXPE)? No matter what we look at in the market, we should always define our risk in advance, so we don't end up like a "deer in the headlights." This is why on all my trade scenarios or setups, I like to tell you when I will consider myself wrong on a trade.

I also suggest getting to either a break-even stop when it is possible and seems reasonable. Beyond that, I recommend using a trailing stop as you go just in case the targets are not met. With that being said, some of my recent buy setups HAVE been stopped out or did not trigger an entry. That's just part of what we do for a living. Not every trade setup is going to play out. Please make sure you protect yourself and truly know what the risks are.

Next, let me give you some very clear parameters for a short in EXPE. Most of my traders would execute this via an options strategy.

I'm eyeing this short because I am looking at a general larger pattern of lower lows and highs since the Feb. 5 high was made. As far as the price is concerned, I see what a Fibonacci price cluster of resistance. This resistance zone comes in at the $61.19-$61.65 area. This zone includes a .618 retracement of one swing, a 1.272 extension of another and two 100% projections of two of the prior rally swings. Note the recent high was made close enough to this zone at $61.08.

If you look at the daily chart I have prepared below, you will see that I noted the prior rally swings that are similar to the most recent swing up into the June 19 high which was $6.69. They were $6.87 and $6.86. In addition to looking at the price resistance here, I have also labeled the time of the prior rally swings, which have been anywhere between nine and 13 trading days. The rally into the recent high has lasted nine trading days so far.

Source: Dynamic Trader

The bottom line: If we are going to see another swing down in EXPE, this is the ideal place in both price and time for this to occur. My maximum risk on this position can be defined either above the recent high made on June 19 or above the top end of the price cluster zone a $61.65. (Typically, I place the stop around a dollar above the zone for something that is under $100 -- $62.65 in this case). If EXPE starts to roll over from these time and price parameters, the potential downside target comes in at the $52.57 area. If the $61.19-$61.65 area is taken out by a decent margin instead, then I will consider myself wrong on the trade.

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