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I've recently become more of a fan of a certain trade....the "pullback to the breakout trade. The risk on the entry is fairly low, and the reward is fairly large.
Here's the general concept: a stock breaks out of a traditional pattern on high volume, and then sometime in the near future retreats back to the breakout point in lower volume. The trade is best executed when you simply close your eyes and jump into the trade as it gets close to the breakout point. if you wait for it to actually bounce, you'll miss several percentage points gain on the trade.
When I say traditional patterns I mean bases like cups, cup & handle, double bottom, flat bases, etc. I'll provide a few examples.
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Joined: 10/7/2004
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Ben;
Great idea! I have made some very handsome returns on this sort of entry. The only variation I would offer is that I enter based upon daily checking and resetting my entry to a conditional buy order one penny above the previous day's high of day after the close.
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GNBT recently broke above a significant trendline and is now settling back on top of that trendline on waning volume.
Here's a pcf that I've had some success with in tracking these:
C120 < AVGC200.120 AND C100 < AVGC200.100 AND C50 < AVGC200.50 AND C5 > AVGC200.5 AND C4 > AVGC200.4 AND C3 > AVGC200.3 AND C2 > AVGC200.2 AND C1 > AVGC200.1 AND C > AVGC200
I look at the chart on a multi-year basis, add OBV with a LR255 and volume. OBV above the LR255 is a nice confirmation.
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i think this is called a "throwback". i prefer to wait for a reversal to occur on a 10 min chart or so, before entering.
notice on your first chart, psun, there were actually two opportunities to enter after the breakout. shortly, after the breakout, a "retest" occurred(although it didn't quite touch old resistance), then @10 days later the "throwback" occurred. "throwbacks" are very common after breakouts of symmetrical triangles.
i think statistics show most breakouts fail. so it helps to enter after a "confirmed" breakout.
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also there was a sweet gap that got perfectly filled on PSUN a few days after the pullback buy...its amazing sometimes how well TA works.
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Joined: 2/19/2008
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TD, What is LR255 placed on?
Ben--I like this. I can see where reading some candals carefully could result in good entry points. Looks like there is an engulfing white candal on OWW, a reverse dragon on PSUN and CTRIP, Dragon on DSW,
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LR 255 on OBV, sorry, I thought I said that.
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QUOTE (ben2k9) also there was a sweet gap that got perfectly filled on PSUN a few days after the pullback buy...its amazing sometimes how well TA works.
yup, interesting how it nailed the fib retracements and ma's.
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Joined: 1/30/2009
Posts: 267
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QUOTE (funnymony) QUOTE (ben2k9) also there was a sweet gap that got perfectly filled on PSUN a few days after the pullback buy...its amazing sometimes how well TA works.
yup, interesting how it nailed the fib retracements and ma's.
Textbook VSA play also.
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Pullback alert:
VICL
STEC (caution, volume is sketchy)
AIS
CRUS
APT
GNBT (someone else discussed this in another thread)
SVU
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Registered User
Joined: 1/12/2009
Posts: 235
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Ben, do you have a formula or PCF that you use to scan for pullbacks?
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Registered User
Joined: 2/19/2008
Posts: 193
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Could you weigh in on going in on a stock like this with very low volume?
TLX
Thanks
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Joined: 1/3/2007
Posts: 43
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QUOTE (ben2k9)
Pullback alert:
VICL
STEC (caution, volume is sketchy)
AIS
CRUS
APT
GNBT (someone else discussed this in another thread)
SVU
I like AIS TP 1.50, also SVU TP 17.30
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Registered User
Joined: 2/19/2008
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Can't find TP
MOVE
ONSM
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Joined: 1/28/2005
Posts: 6,049
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"Can't find TP"
-------------------
I believe TP= target price.
Thanks
diceman
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Joined: 10/7/2004
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Thanks Ben and TD
Regards
BobMc
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QUOTE (traderm30) Ben, do you have a formula or PCF that you use to scan for pullbacks?
Here's one easy scan I use....I had to write a few of the PCFs myself
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QUOTE (sailnadream) Could you weigh in on going in on a stock like this with very low volume?
TLX
Thanks
I wouldn't touch it with a ten foot pole.
The problem with illiquid stocks is that they can be very easily slapped around with very little trading capital, and also you'll get a poor execution on the spread.
Stay with the more liquid stocks. All of my easy scans require a minumum 50 day average volume of at least 250k, and one of my main scans looks for stocks with dollar volume in the top 35% range of the market.
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Joined: 2/13/2005
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Ben2K9,
I have an idea. I like your charts and your thinking for this strategy. How about you get with IntotheTrade and combine your content with his Youtube videos and you two guys could have a great website. Now you just need a money honey for the commentary.
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Joined: 2/19/2008
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Thank you Ben,
It was starting to slowly dawn on me and I got out of one the other day
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Joined: 1/12/2009
Posts: 235
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Salinadream, would you happen to know the link that explains in detail how the Tobydad profile works. What links did you utilize to learn to trade from him? Any infor is appreciated. Thanks!
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traderm30
Look at: "FLML and the tobydad profile" as a place to start.
Thanks
diceman
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STEC had a nice bounce today, right off of the prior low, which itself was a filling of a breakaway gap.
RSH looks bounce-ready
CPO looks like it's coiling up
EDAP support trendline
EBIX a CANSLIM quality stock pulling back..
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QUOTE (thekubiaks) Ben2K9,
I have an idea. I like your charts and your thinking for this strategy. How about you get with IntotheTrade and combine your content with his Youtube videos and you two guys could have a great website. Now you just need a money honey for the commentary.
Ha! I'm thinking a hot money honey with a British accent. There's just something about that that is hot, and yet, smart.
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Registered User
Joined: 1/12/2009
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Ben, on a pullback such as above with EBIX, when you buy on a pullback do you find a stock normally breaks previous resistance from where it began its pullback?
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it's been happening a lot. One might take some profits near resistence levels though if you want to be more conservative or shorter term oriented. after all, if it breaks through that point, you might have a good chance at buying the next pullback to that point!
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QUOTE (ben2k9) QUOTE (traderm30) Ben, do you have a formula or PCF that you use to scan for pullbacks?
Here's one easy scan I use....I had to write a few of the PCFs myself
Ben can you explain how the Close lower than c3,4,5, lower volume 5 days, and price volatility factor into your scans. Are these PCFs?
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Joined: 2/19/2008
Posts: 193
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Sorry Traderderm-didn't see your post til today. This should help
http://forums.worden.com/default.aspx?g=posts&t=27805
http://forums.worden.com/default.aspx?g=posts&t=30752
http://forums.worden.com/Default.aspx?g=posts&t=30865
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for one, this scan is probably not the best way to look for pullbacks. Thebetter method is watching leading stocks (good fundamentals, and relative strength) and then watching for their pullback. I trade breakouts too so they go hand in hand. Sometimes I miss the breakout though, so this is a way to get in after the breakout. (lots of breakouts revisit the breakout point).
But this scan can be useful in a up market for identifying stocks in an uptrend that have above average volatility (don't want stocks that aren't movers), and that have pulled back. Ideally I want the pullback to be on lower volume, and several days of lower prices.
So those are PCFs that I wrote to find those criteria. so the close lower than c3, 4,5 finds stocks that closed lower than the close 3, 4, and 5 days ago. lower volume 5 days is a PCF that uses moving averages on volume to find stocks where the volume is trending down. I'm sure there are more clever ways to program some PCFs but this was the way I did it.
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Ben-- Can you give me an idea about exit strategies--For instance could you look speak about CHNG and how you read todays engulfing candle. Would you consider exiting because of this or is this when you just 'close your eyes' to take a quote from you out of context, and how does TD say it BNWH (bite nails and wring hands) I did plenty of that today.
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exit strategies differ a little, depending on the type of trade, but generally on a pullback trade I am going to have my stop (not necessarily a hard stop) just below where I perceive support to be. (which on the pullback trade is the breakout point). I don't want it to be so tight that I get shaken out with natural volatility.
my thesis on a pullback trade is that its going to bounce off support. If it instead plunges through support then my thesis is no longer valid, and so I'm out.
on CHNG, this was not a pullback play, it was somewhat of a breakout and fundamental play. I think this thing could be at $16-$18 in a few weeks or months. I did not want to see CHNG pull back much lower than the support range here in this chart. This is a very volatile stock, having an average daily range of nearly 10%, so I know it's going to be a bumpy ride. Just look at what a huge day it had yesterday....up nearly 20% at one point.
I don't obsess too much over candle patterns.
If you haven't already, I highly recommend becoming familiar with William O'Neil & the CANSLIM methodology. The Successful Investor and How to Make Money in Stocks will give you a good foundation.
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oops, here the chart.
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Thanks for the help Ben. You know I thought I had read How to Make Money in Stocks but now that I pull it off the shelf I see that I didn't. Read 24 Essential Lessons for Investment Sucess long ago. Will open the former. I subscribe to IBD. And have taken the Technitrader class. I will admit that I have been ignoring much of the fundamentals lately in my endeavor to understand technicals better because I have been swing trading more. Just bought Murphy's study guide and am waiting to get the text. I also belong to an investment club which uses a Better Investing long term hold philosophy. So I have a smattering of different approaches. Nothing approaching a coherent whole yet. My confidence level is low after the last few days. Found that I was taking too much risk for what seems to be an impending correction. I can see that I am much more confident in the stocks that I know well and have a better idea of where to place stops with them. So thank you for steering me in a good direction.
If you are placing your stops at that lower support line then that would be way too much risk for me. I can see that I got into this stock too late and I need to not hurry so much in pulling the trigger--you've taught me that there will likely be opportunites later.
Thank you,
Jean
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just to make sure we're on the same page, I was placing stops around the middle line, not the line under the entire formation.
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Big bounce with EBIX so far today
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QUOTE (ben2k9)
EBIX a CANSLIM quality stock pulling back..
BOOM!
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QUOTE (ben2k9) QUOTE (ben2k9)
EBIX a CANSLIM quality stock pulling back..
BOOM!
Ben, when do you normally exit a trade like EBIX? Start taking profits at previous resistance or a wait and see if it breaks through approach?
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I don't have hard rules. it kind of depends on the stock, the market, etc.
In this particular case, EBIX is a CANSLIM quality stock with top-rate fundamentals. in fact, it's the only stock that comes back when I run my tight CANSLIM screens. That being the case, this was more of a long-term purchase (hopefully) that I made in my long term portfolio. I used the pullback method to get in at a favorable price point.
Since the CANSLIM method seeks to find monster stocks, for me I will try to hold this one until it gives me a reason to sell.
There's no recent resistence beyond the recent high, so I'm more inclined to let this thing run...
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I should also point out that IBD would consider this a BUY all the way up to 5% past the prior high, as a "bounce off the 50 day / 10 week" buy opportunity.
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