How To Catch A New Trend Early
Should You Pick Tops?
I’m a momentum player. I seek to identify a trend and then look enter that
trend after a correction. Said alternatively, I trade pullbacks. I do not
try to pick tops or bottoms. I think the old saying "bottom pickers and top
pickers become cotton pickers" is one of the few true Wall Street adages.
This is not to say that I will not trade new trends early. In fact,
transitional patterns can offer some wonderful opportunities. Let’s take a look
the Biotech HOLDRS
(
BBH |
Quote |
Chart |
News |
PowerRating), mentioned recently.
Notice that the stock made new highs but then began to trade sideways (a). I
believe that if a stock is making new highs, it should do so with vigor. Even
though it failed to make forward progress, this in and of itself isn’t reason
enough to go short–it’s just our first clue that the trend may be changing.
Notice that it then sold off hard (b). At this point, it’s beginning to look
more and more like a top. However, it should not be shorted because it is
oversold and due to correct. The stock then corrects(c). Notice that this
pullback stalls short (d) of overhead resistance (the sideways trading range below the arrow). This
action sets up a Gatekeeper (like) and First Thrust pattern (as usual, email me
if you need free rules).
An entry is triggered–so, far, so good.
Again, I believe that top picking and bottom picking is a loser’s game.
However, as you can see, if you wait for signs that the trend is changing, nice
opportunities can be caught early.
I covered the above, recently mentioned stocks, current market conditions,
and other stuff earlier today in my weekly interactive presentations. Email me
if you need the (free) link or
click here to view it. I also have the archives from the last year covering
a plethora of thing such as stops, entries, damage control, sectors, scanning
etc…
Best of luck with your trading on
Thursday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Learn my newest and most advanced version of my Bow
Ties Strategy. Click
here for details.