A huge part of trading is being able to adapt. After finishing my yearly review and running through hundreds of charts, I’ve decided to tweak my indicator setup a little bit for 2022 and it helped me trade MELI!
I’ve switched from standard candlesticks to Heikin-Ashi charts, and that has helped me hold stocks like MELI longer and has also been saving me from some entries that aren’t done making downtrend, on stocks like OSTK, SNOW, ARKK.
Furthermore, I’ve replaced my moving average indicators with Keltner channels. Given the extreme moves we are seeing in some of these growth stocks that keep going lower, the Keltner channels help me identify extremely oversold conditions signaling when it might finally be prudent to Buy the F’n Dip (BTFD)
Heikin-Ashi Candlesticks are an offshoot from Japanese candlesticks. Heikin-Ashi Candlesticks use the open-close data from the prior period and the open-high-low-close data from the current period to create a combo candlestick. The resulting candlestick filters out some noise in an effort to better capture the trend.
Heikin-Ashi Candlesticks are not used like normal candlesticks. Dozens of bullish or bearish reversal patterns consisting of 1-3 candlesticks are not to be found. Instead, these candlesticks can be used to identify trending periods, potential reversal points, and classic technical analysis patterns.
Here’s an example of the difference between normal candlesticks and Heikin-Ashi charts
Heikin-Ashi Candlesticks provide chartists with a versatile tool that can filter noise, foreshadow reversals, and identify classic chart patterns. They are also helping me on when to exit trades and helped me hold on to MELI for 2 weeks!
Heikin- Ashi charts don’t change my reasons for entering a trade. I still look at important factors such as sentiment, fundamentals, and technical levels. But they do help me ignore the noise, and hold my trades for a bit longer!
MercadoLibre, Inc. (MELI) operates online commerce platforms in Latin America. It operates Mercado Libre Marketplace, an automated online commerce platform that enables businesses, merchants, and individuals to list merchandise and conduct sales and purchases online; and Mercado Pago FinTech, a financial technology solution platform, which facilitates transactions on and off its marketplaces by providing a mechanism that allows its users to send and receive payments online, as well as allows users to transfer money via their websites and mobile apps.
Basically, MELI is the Amazon of Latin America.
After a significant downtrend where MELI was sold off more than 30% for over 2 weeks, it started to bottom on a much larger than usual volume for 3 days beginning Dec 2. This increased volume can be indicative of bottoms, and this proved to be the case here.
As you can see from the chart above, from the Keltner channels, the bottom was formed 3 ATR’s (Average True Ranges) away from the mean. For the most part, I try to avoid catching a falling knife. This stock came to my attention as it was consolidating 1 ATR below the mean after the bottom was in place.
My thesis was this: I expected the broader market to rally into the new year. MELI had been taken to the woodshed, down over 45% from the highs made in September. I loved the story, and the capitulation looked to already be in place.
I bought calls expiring Jan 21 on the Dec 16 and 17 as MELI was consolidating 1 ATR below the mean on my Keltner Channels. 2 bottoming candles formed, which was a good sign of support over the next couple of days. Then as the market ripped into the new year as I had expected, MELI traded higher. There were no sell signals on my Heikin-Ash daily chart until Jan 3. As MELI found resistance 1 ATR above the mean on my Keltner’s, I proceeded to sell out of it. The Heikin-Ash daily chart kept me in the trade as I was given 8 “green days” in a row and made this a stress-free trade. This is what I mean when I say the Heikin-Ashi charts can filter out the noise. What a great way to start the new year!
Being able to adapt as the markets change is one of the most critical aspects of trading. I’ve made a few tweaks to my charts coming into this year to help me filter out the noise and identify better-oversold conditions in this weak growth stock market.
Heikin-Ashi charts help me filter out the noise as they have fewer consolidation candles than traditional candlesticks.
In addition, Keltner channels help me identify severely oversold conditions as stocks move multiple ATR’s away from the mean. I was able to begin 2022 with a great trade-in MELI. The Heikin-Ashi charts really made holding this stock to its pivot point a breeze. I was able to stay in MELI for a 2-week hold and exit right before it sold off!