Room To Move…
After Friday’s column, I received a number of emails regarding pullbacks. One
of the most common questions was on picking the best ones, and how to go about
that.
Â
Â
Above is the chart from last Friday on Polymedica
(
PLMD |
Quote |
Chart |
News |
PowerRating).
When playing pullbacks, we are attempting to profit on the retest of the
previous high, as markets often do. When looking at a pullback for a swing
trade, one of the factors to consider is how far the stock will have to move to
get back to an area of resistance. Here with PLMD, we have a range of almost 4
points to get back to the former high, making it a good candidate for a possible
trade.
Â
Â
Now take a look at the above chart of Anthem
(
ATH |
Quote |
Chart |
News |
PowerRating). Another
pullback but not nearly as much range, just over 1 point. Does this mean that it
won’t make a good trade? No, but you will have to either risk less on your
initial stop, or pass it by because it does not offer at least a 2 to 1 risk to
reward ratio. Keep factors like this in mind when seeking out pullback
candidates. It will help you greatly when looking for trades.
Until tomorrow,
Duke