Wednesday, May 21, 2014

Buying Pullbacks

As part of your futures trading strategies, or as an online day trading method, buying on pullbacks is a skill that every trader needs to learn. Like any other skill, the more you do it, the better you get at it. Here are guidelines to follow when searching for buying on pullbacks (or selling on rallies):

1. The stock or futures instrument must be in a trending market. ie Market is bullish or bearish. There are no pullbacks in sideways markets.

2. Identify sectors that are outperforming the market (in an uptrend).

3. Make a list of market leaders and leaders in the sectors that are leading the market trend.

4. A key point: After entering into the trade, see the stock go up on VOLUME. LOW VOLUME ON THE PULLBACK, HIGH VOLUME as the stock advances higher. This is a sign of strength.

5. Lastly, and this goes with out saying, WHEN WRONG, GET OUT OF YOUR POSITION!! NO IF, AND’S, BUTS or MAYBE’S about it. Do not be in the business of averaging down. There is a difference between averaging down and buying into a pullback. One makes you money and the other ends careers.

        These are guidelines to follow, but keep in mind not much in the world of trading is black and white. Be aware that pullbacks can be messy and uncomfortable, especially for newer traders. But, your ability to recognize good entry points for strong stocks pulling back in an upward trending market will make you more money and help you become a consistent trader.

        We probably witness a trending market as BJP government came into power, so these pullbacks could be useful to traders.

2 comments:

shreyas nevatia said...

One of the best way to identify it shall be inverted head and shoulder

Abhay Vaidya said...

Sir, this article made me remember that in your "Short Term Trading Course" last year you have explained the pullback trading strategies in very nice way. Thanks a lot for all your postings - happening almost every-day..!!