Trading the bounce after Hewlett Packards bad earnings and weird business decisions

When a company like HP (disclosure: I'm an HP employee) makes major business decisions that no one appears to really understand, and has disappointing earnings as well, the stock market often reacts a little more than strictly neccessary. Great conditions for profiting from a bounce!

HP has been on a downward slide for three quarters now, but this 20% post earnings drop outdid the previous ones even. So there was an opportunity for a bounce trade.

Entry was at $23.77 on August 19, which was a whole dollar off the low of the day, and underneath the lower bollinger band. The bollinger band represents the tension of the movement in price, so when the price is below the lower band, there is a tendancy for the stock to spring back.

The trade hit my 1% per day profit goal after four days, so I put a very tight trading stop in on August 25, and was stopped out the next day. 4.8% profit in 4 trading days. In this sort of bounce, the trades should be short term. The reason is that that when the bounce occurs, it usually then drops off again, just as a ball does. Drop, bounce, drop, bounce, with each bounce getting smaller until the stock stabilizes at the new level.

Missed the boat big time on my AREX bounce trade

Sometimes, it's hard to decide whether you are smart or an idiot. Looking at this chart, in hindsight, this exit from AREX looks insane. Technically, the setup looks perfect for a bounce. I nailed the bounce entry point, took a day or two of a beating, then it looked like a recovery was starting.  This trade made 4.63% in 2 days in wildly swinging markets which is not bad, but it missed out on a 25% profit in 4 days if I had stayed in for the ride

Here is why I exited. This is the 5 minute chart from the morning I decided maybe the market was turning to the downside, not the upside. The last bar shown below is where I decided the market was going down, not up. In hindsight, waiting 15 more minutes would have shown me that the trend was upwards again. But 15 minutes in last weeks market could have also erased the entire trade profit from two days in the most volatile and unpredictable market since 2008. The 75 cent swing in the first hour of trading on a $17 stock was really scary, and AREX is a twictchy, unpredictable stock at the best of times. I took my 4.5% and ran, thereby missing a 25% profit in the following three days.