Note this is an educational article from All About Trends originally published in December, 2009.
ENTRY POINTS ARE THE SAME WHETHER YOU ARE AN INVESTOR OR A TRADER
The markets have been locked in a sideways trading range. Technicians call the pattern a “base building” pattern. Example:
With the market at support and forming a base, we look for stocks that have pulled back from their recent highs to support at a trendline or 50-day moving average. Rather than going straight up, an index or stock will typically make a move higher, then spend time consolidating those gains, often trading down to an area of chart support–the 50-day moving average and/or upward trendline. Then a stock or index will often make another move higher.
When a stock pulls back to support, it’s our opportunity to buy and take advantage of the next run.
We are buying at support, ideally before a new move higher. Buying at this point minimizes our risk and increases our chances for stronger profits.
The chart of BIDU is a good example of what we are looking for.
This issue came down to the 50 day average at 415 and proceeded to bolt to 426.46. That’s a swing traders’ and day traders’ dream. Those who don’t use charts never saw it coming. Classic action for both traders and investors. We have the characteristics needed for a safe buy point:
1. BIDU is in a clearly defined uptrend and above the 50 day average
2. BIDU pulled back to support at the 50-day average which also happens to be close to additional support at the green upward trend line.
3. Full stohcastics were in oversold position (blue circle).
This was a chance to buy a leading stock at support and be in position to enjoy another run higher. As long as the stock remains above the green upward trendline, it’s in an uptrend. It warrants holding and adding to it upon subsequent pullbacks.
To learn more, sign up for our free newsletter at www.allabouttrends.net and receive our free report — “How To Outperform 90% of Wall Street With Just $500 A Week.” Use “shadows” as your code for a free trial to All About Trends here.
