As I mentioned not long ago, I’ve mostly stopped posting my day-to-day trades. There are just too many of them to spend time commenting about them all. It was easy enough when I made 10 trades a month, but I made 5 trades today alone (4 profitable, 1 loss). Because my recent article about stochastics was on my mind, though, I made a short scalp in KBR Inc. (NYSE: KBR) that I wanted to share.

Two reasons:

• I got interested in the trade by noting what a stochastic on the 5-minute candles probably would look like. I have been saying you can just eyeball this stuff, so I want to provide proof in the form of real trades.
• I wanted to make sure everyone knows that there is no more uptick rule, since the news about it has been sort of muted, from what I can tell.

The Charts

First off, note that KBR was in an uptrend overall. I mainly was wanting to go long this stock (and did, earlier in the day, in fact).

But, the intraday PnF chart showed that the uptrend it was on might be giving way:

Here’s the relevant portion of the 5-minute chart, that made me decide to go short:

Numbers below correspond to the numbers on the chart graphic:

1. We had a peak (local high) with a weak close. I imagined that the stochastic reading on this peak would not be overly strong due to the tall wick.
2. A second peak (local high) forms, only this time with an even weaker close. Even though the first high was already weak, this extremely weak close would lead to a divergence on a stochastic indicator. The stock made higher highs, but the stochastics were headed south.
3. So, I shorted the stock at 30.90 based on both the 5-min chart and the PnF chart info. I shorted it on a downtick, and it felt fantastic! Of course, since a market order to sell short still goes off at the bid, the MMs can still hurt you by dropping the bid dramatically at the point of a breakdown. But at least they can only do it once now. With the uptick rule, it used to be possible to have a market short sale hung for 20 seconds while the price falls without you.
4. I was hoping to see 30.76. I chose .76 because it’s one cent higher than round number .75, and I chose that area because the 20EMA was quickly rising toward the .70 area… you can see it as a red line on the bottom of the chart. For a play like this, which goes against the overall trend, I didn’t want to overstay my welcome. One rule of thumb I use is: you can stay in for the same amount of time as it took to form the two peaks. So, since it took 3 candles to make the peak at point 2, I was looking to get out by the third candle after entry. When it failed to make a lower low than the previous candle, I was sure it was time to go, and I got out for a 10 cent gain.

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