Why Not Buy Now?
Presented by: Cliff Clark
This is an article that I save from years ago. I don't know who the original author is but it is something for new traders to be aware of.
It is a common question many people have. It is also a common mistake new traders make. If we are supposed to buy a stock OVER 32.0, and it is now at 31.75, why not buy it now? Why not save some money?
The key is that if we are going long, we want to make sure the stock is moving up. Even in a small way, we want to see some 'evidence of strength'. (If we are shorting, the same applies. We want to see some extra sign of weakness.) Does that sign of strength guarantee the stock will move up? Of course is does not. But it does stop you from buying a free falling stock, and increase your odds of the stock moving up dramatically. We will always pick on points of resistance, or supply, where there should be many sellers present. If the stock can clear that area without any problems, after several down bars, that give us an indication it may be reversing in the short term. If you pick strong stocks that are on quality pullbacks, the only question is when that pullback has ended and when the rally will begin. Taking out prior resistance is the gauge we use. For example, on a daily chart we may use a prior days high as the trigger point, after the rest of the set up looks good.
Of course, there can be other methods of buying stock. There are also times when the evidence is so overwhelming that traders will correctly 'anticipate' the stock moving up. However, be aware, until you have the skill to make good estimations of these things, make sure your stock has passed the 'strength' test. This will keep you out of trouble, and remember, if you miss a play, missed money is better than lost money.
Cliff's comments
Read and follow the advice that I highlighted in bold text. Don't start anticipating your trades until you are a very experienced trader. Anticipation can put you out of business in a hurry if you are not careful.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
