BIDU Trade Idea / Set Up

BIDU is one of my favorite shorts of the last few years and if I ever wrote a book about how Wall Street uses Technical Analysis and Technical traders' laziness against them, BIDU and the posts from that period of Late March/mid-April 2012 would be textbook.

The chart itself may not look that impressive, it was mainly the posts days and weeks ahead of time saying, "OK, watch for this to happen" and why and then the next part and the entire thing went down as envisioned and the trade came right to us on our terms with hardly any risk in the position.

A) is a large triangle that first caught my attention as 3C was clearly negative and in my experience I don't think I've ever seen a large triangle that wasn't a top (proceeding an uptrend), as a matter of fact, GLD did the same exact thing (large triangle) in 2011 when we called a top in GLD. ADM was another that gave us a head fake move too in 2008 (ADM is probably where I first really started understanding what they were and how they worked.

The key with large symmetrical triangles is understanding that they are NOT to be treated as a consolidation triangle that is so popular in Technical analysis that typically lasts a week or so to a month) those are corrections through time rathe than price. Technical traders love them because they are the easiest to remember,  descending and ascending (bearish and bullish) triangles can get confused easily by new Technical traders, but a sym. triangle is the same every time, all you need to know is the direction of the preceding trend, if it was up, then it's a bullish price pattern (according to Technical Analysis). The misidentification of what the triangle actually is, is the first mistake, but traders see a triangle and, "A triangle's a triangle is a triangle. What grabbed my attention was the distribution already present, I knew all we had to do was look for a head fake move that lined up with out market analysis.

B) The triangle breaks out to a smaller consolidation triangle and 3C gets worse, this was obviously going to breakout to the upside and the market was close, but not quite there.

C) Is the Breakout that we shorted, a dollar or so off the highs for most of us and again 3C looked even worse so we were able to confirm the breakouts that technical traders were chasing and buying were distribution, we just had to wait, we actually phased in to that position in 2-3 parts because there was a rectangle range forming and we weren't sure if there would be a head fake above that which there wasn't.

D) Is the first place we or I covered half of the position which was already at a 30% profit with no leverage.

E) Is where I covered the second half after adding a little at higher prices.

F) Was a bull flag that had negative divergences that we shorted and made a quick buck there too.

The magic of the trade wasn't the gain, it was how smoothly everything went, understanding exactly what traders would see and how Wall St. would react and being able to use those "Concepts" to our advantage.

BIDU now... Psychologically I already know that I have to be careful because the last few trades in BIDU just came together so perfectly and it was such an easy trade, I don't want to let my guard down even a little because I had good experiences in the past.

 We've had plenty of buy/sell signals and we just got past a sell signal

This negative divergence to the far right on a 4 hour chart is something I haven't seen in BIDU before.

 The same with this 2 hour chart, BIDU is in a lot worse shape than it was before.

 The 30 min chart tells me were are already close enough to the major damage, what we need to to get lucky with a bounce/head fake move.

Like the original trade in BIDU, we already know that any head fake move or bounce is going to fail because of the depth of distribution, that makes it a lot easier to short in to price strength when you know this stock is not recovering from this damage any time soon.

The 10 min chart shows us something that looks like a bounce is setting up, but we don't have much more than that at this time so it's a matter of watching it and looking for that opening as well as setting some alerts.

I'd like to get a shot at BIDU in the $140 area, the higher the better, but at least above $138 would be a decent entry, you may want to keep BIDU on your alerts.