Thursday, March 3, 2011

Buy on Dips - How To

Stocks will often pull back or retrace a percentage of the previous move before reversing. These Fibonacci retracements often occur at five levels: 23%, 38.2%, 50%, 61.8% and 78%. After a stock makes a move to the upside , it can then retrace a part of that move down , before moving on again in the desired up direction . These retracements or pullbacks are what you as a swing trader want to watch for when initiating long or short positions.

Once the stock begins to pull back (retrace), then you can plot these retracement levels on a chart to look for signs of a reversal. You do not automatically buy the stock just because it is at a common retracement level! Wait, and look for candlestick patterns to develop at the 38.2% area. If you do not see any signs of a reversal, then it may go down to the 50% area and so on. Look for a reversal there. You do not know if or when the stock will reverse at a Fibonacci level! You just mark these areas on a chart and wait for signal to go long or short.

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