Is This A Treasure Map, Or Am I $LOCO?
By Paul Konikowski, CTS-D
Looking for the patterns in static, they start to make sense, the longer I’m at it
from “Lightness”, by Death Cab For Cutie
About an hour after El Pollo Loco made its initial public stock offering on July 25, 2015, I decided to day-trade the corresponding $LOCO stock ticker. If you have never traded stocks, the goal of a day trader is to take advantage of short-term trends and volatility. I sold the stock position less than two hours after I entered, and felt rather proud of my trade, or at least lucky.
As I watched the three-minute candle chart play out the rest of the day (each candle representing three minutes of trades), I noticed that the price action was acting like it had earlier that morning, in terms of short-term chart patterns and resistance levels.
I looked more closely, and noticed that the volume pattern (to the left of the vertical line in the screen shot below) was also repeating on a larger scale the rest of the day (to the right of the vertical line in the screen shot below)
Its worth mentioning that The El Pollo Loco IPO happened on a Friday morning, which essentially gave me an entire weekend to over think the repeating pattern. The resulting hypothesis was that the pattern might repeat again, a third iteration, only on a slightly larger scale. The first pattern lasted about 2 hours, the next about 4.5, so I estimated the third pattern iteration would naturally expand to fill Monday’s trading session of 7.5 hours.
I noticed that $LOCO was up in the pre-market on Monday July 28, and re-entered. If my theory was correct, it would start with a pop, and end with a surge of buying; it did.
Okay, here is where it gets crazy
After my best two days of stock trading, I decided that a. I would definitely need to blog about this pattern sometime and b. I should frame the “LOCO TRADE PLAN”. I wanted to have a positive reminder to “plan the trade, trade the plan”, and thought it would be handy in case some day, the El Pollo Loco pattern might happen to repeat itself. I honestly, never, ever, expected it to repeat more than twice. How could it repeat again? We are talking about a chicken restaurant and the stock market, not a fern in the woods!
But then every time I think its gone, it comes right back, hitting me between the eyes, the price hitting Fibonacci extension and retracement levels, repeatedly. So far, I have counted at least two more iterations of the pattern best depicted in the July 28 five min candles. The patterns have ranged from 2 days to a week in duration. Even now, I think I see the same pattern developing on the daily candles.
Am I ONTO something, or am I ON something? Is this treasure map the key to trading $LOCO, or is it just Apophenia, where I am seeing patterns or connections in random or meaningless data? You decide for yourself, I am heading out to grab some more chicken. :)
Please note that the blog author Paul Konikowski currently owns stock in El Pollo Loco, and plans to trade it again. You need to do your own research and form your own opinion. Paul is not an analyst and is in no way making any price projections.