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A Close Up of CitiGroup

A Close Up of CitiGroup
March 12
21:08 2012

The Chart

Here is a 15 minute chart snapshot of Citi Group Inc (Symbol: C) for Wednesday, February 8th, 2012. The shaded areas are the afterhours market trading. This chart includes several technical indicators:
• 8 period simple moving average (blue line)
• 20 period simple moving average (red line)
• 200 period simple moving average (yellow line)
• Bollinger Bands (purple lines)
• Relative Strength Index (RSI) (dotted line)
• Volume (dark blue bars)

The Walkthrough

The first thing to notice about this chart is that the 8 and the 20 period moving averages are pointing up and are both above the 200 period simple moving average. This is an indication of a bullish market. This trend is confirmed as the 9:30 am opening candle closes green. The 9:45 am candle closes as a doji above the prior green candle. This pattern represents a good signal to enter a long position in Citi Group at the beginning of the next candle, with a stop below the body of the Doji candle. After entering this long position in Citi Group the next two candles continue to move higher until the price is completely outside of the top Bollinger Band. The 10:15 am candle then closes 60 percent outside of the Bollinger Band which gives a strong signal that this rising price movement might soon be over.

The 10:30 am candle, highlighted in yellow, introduces the beginning of the pullback to the 8 period simple moving average. This is to be expected because 10:30 am is a reversal time and after three to five consecutive green candles the market will normally begin to pullback. Although the next candle is green and closes above the highlighted red candle, follow-thru is not likely because the price is already extended beyond the Bollinger Band and the RSI signals that the instrument is overbought. This part of the trading day is where novice traders get into trouble. Considering that a trader has probably already made profits, it would be better to stop trading or watch other financial instruments until Citi Group has finished pulling back. It is better to wait and trade with the trend later in the day; this ensures that the trader keeps his profits.

If a trader decides to continue trading, this would require experience with trading against the trend. To do this a trader would have to change his approach by changing the way the market is viewed. First, the trader should switch to a smaller time frame to guarantee that the entry or exit on any given candle is more accurate. Second, if a short position is entered, the target would be either the 8 or the 20 period simple moving averages. Third, given the fact the trader is trading against the trend on a larger time frame all trades will have to be brief as any pullback can completely erase gains. This strategy is not recommended for those who are not accustomed to day trading and taking quick profits, also known as scalping.

If a trader instead decided instead to wait patiently for an opportunity to go long, an entry signal appears. Highlighted in the orange circle, the 12:30 pm candle breaks above the 8 period simple moving average. Upon entry the next target to exit the trade would be at the top Bollinger Band with a stop loss below the entry candle. As the candle comes into the top Bollinger Band the trader should look for a signal to exit the trade. One such signal appears at the 2:15 pm candle which closes in the form of a doji, highlighted in the purples circle.

The Lesson

Trading requires patience, goal setting, and the ability to change your perspective to take advantage the opportunities that may be right in front of you. A trader’s ability to change in the moment and believe something new will determine how versatile the trader can trade. Finally, trading the markets will always present many opportunities, but to the trader who can trade what they see and not what they think will go the spoils.

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