It's always tempting to chase a stock as it soars 10%, 20%, 30% in a day, and once you buy it, it more often then not, it pulls back, triggering your stop loss. I thought I learned my lesson when I fell for a pump and dump scheme, and would never make a silly mistake like that again, unfortunately I bought at the peak of a different stock....There's just something irresistible about a stock rising. Perhaps it's the greed; whatever it is, it's damn hard to control.
When a stock breaks through a major resistance point it'll attract shorter sellers and profit takers, causing the stock price to fall. However, if the stock is in an uptrend in addition to a strong macro-economy, the stock will continue it's upward path.
So when should one enter the trade? Well if you believe in technical analysis, wait for a reversal pattern like the hammer or else monitor the stock closely and pounce when the selling pressure subsides (i.e. when the stock stops dropping and makes a slight gain). If it doesn't subside, then stay away it was probably a pump and dump. Buying the pullback is the least risky trade and should probably be your favorite swing trade.
"Sell into strength and buy into weakness"
-The Hawk
Good link on swing trading and buying the pullback:
http://www.swing-trade-stocks.com/pullbacks.html
Support and Resistance:
http://www.stockscores.com/basics.asp?essayid=4
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