Trader’s Narrative

Being in the battered autoparts sector, it wasn’t really a surprise when Borg Warner announced a downward adjustment in their future business expectations and adjusted to it by announcing that they would trim 13% of their workforce. The market reacted by opening their stock 6% below its previous close.

The first candle was wide range and had a rather longish lower wick (showing that price fell but was pushed back up above those levels). The next candle was a spinning top and true to its usual interpretation it signalled a change in direction. From there the third and fourth candles consolidated price into a tight range but all the while staying at the top of the opening range.

So far so good. Right? The fifth candle took price above the previous candle’s high and signalled a buy point at $51.50 with a stop loss placed below the consolidation range. But I didn’t take that signal because I looked at the Fibonacci retracement of the opening gap.

This showed that the entry point of $52.00 was very close to the 38.2% retracement zone ($52.54). Risking 1 R to potentially gain 1 R didn’t make sense.

But as you can see BWA continued to power ahead all day and eventually closed way above that level.