pullback >< reversal

i read a great trick once that helps keep me out of trouble.

if you look at a trend (any trend) and literally measure it - so say it is ie 10 inches long. if it pulls backe 2 inches (20%), the trend is still intact.

30% - still intact
40% " "
50%" "
60%+ - stand aside.

from 5-50% pullback on a long entry - you wait for price confirmation before jumping in. ie - a reversal candle, doji, or bullish engulfing etc. if you use the bottom of your price confirmation candle as your stop - you can stay out of trouble pretty good.

it works!

best
 
Quote from lindq:

I swing trade pullbacks. Today (1/29), I bought the following:

INFY @ 86.55
ITW @ 77
BDK @ 49.49
CAT @ 76.90
More...

Update, current prices (2/05):

INFY -- 89.58 +3.03
ITW -- 79.53 +2.53
BDK -- 51.56 +2.07
CAT -- 78.01 +1.11
 
Quote from lindq:

Update, current prices (2/05):

INFY -- 89.58 +3.03
ITW -- 79.53 +2.53
BDK -- 51.56 +2.07
CAT -- 78.01 +1.11
More...

Where was your initial stop on CAT? Reason I'm asking is our style sounds similar, but CAT looked like a falling knife (more so than a pullback candidate) to me. Good call so far, though.
 
I don't use percentage or point stops. I wait for price to cross an EMA, or a time stop of 10 days if I have not reached my profit target, depending on the chart and my feelings for the stock at the time. While I take buying signals from a system, there is quite a bit of discretion as to when I sell.
 
Quote from lindq:

I don't use divergences for pullbacks. If you will remember the simple analogy of a rubber band being stretched, then bouncing back, you may begin to see this reflected in price action on a daily, then an intraday chart. The trick is to find the right levels at which the "probabilities" are that a pullback will reverse for a profit, and that you are not buying into a continuing downtrend. Through a lot of experience with this, I am usually right in 4 of 5 trades. Fundamentals are also very important, as are news reports that give a sense of why the stock is in a pullback. Nothing happens in a vacuum. The right application of simple TA can bring candidates to your attention, and the system traded only on TA can bring nice profits. But the odds are greatly improved by understanding what you are buying, and why others may have been selling.

As most experienced traders will tell you of any strategy, it is a lot like learning to ride a bike. At first you'll fall and get hurt. Eventually you'll "get it", and things will become clear and quite simple.
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At that point it is an Accumulation/Distribution issue. Herd stuff.

You can watch the public looking for cheap deals. When an equity goes off the peak, look for a period of accumulation off the peak. Then, after that, distribution resumes if it is a true downtrend.

The test to perform as it goes off the peak is an A/D test.

You can also do a rally attempt analysis (WJO) when the intial conditions for the analysis present themselves.
 
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