• Trading Information - Buying Into a Pullback
• The Equilateral Triangle
• Trading Chart Patterns
• Share Purchase Plans
• Yellow Cake…Anyone?
• Read the tape – it can tell an interesting story

Trend is important. Ask yourself - what is the direction of least resistance? There are a number of ways to determine this and it’s ultimately up to the individual trader. When buying into pullbacks, it’s important to ensure the longer term trend is still up. To determine this some ideas include; is the 200 Day moving average today higher than it was 50 trading days ago? Is the 50 day moving average above or below the 200 day moving average? If it’s above, the trend is up. If it’s below the trend is down.

Once you’ve determined trend we can answer the question, how far does the stock need to pullback before entry?

It’s impossible to answer this question when the market is falling. You could predict that some level of past significance will present a strong entry point however until you see the price action when this point is reached, it remains sheer speculation. From a technical perspective, momentum indicators such as the Stochastic Oscillator, RSI etc reinforce this point well. They can remain in oversold levels for quite some time and only offer a signal once a change of momentum is obvious.

We therefore suggest that buying when a market is falling adds further risk to the trade and is based of speculation rather than the ‘weight of evidence’. By waiting for support to be found and a change in momentum to occur you reduce the risk on the trade. For an indication of this, the stochastic oscillator has worked well in the past. The stochastic triggers when it ticks from below the oversold line to above it. In a strong uptrend it may be useful to use 30 as oversold level while in a moderate trend structure 20 may suffice.

Adding further support to this, we want to ensure that buyers are in control of the stock. The price bar offers insight into this aspect. A bullish bar can be identified by the (CLOSE –OPEN) > (HIGH – CLOSE). This essentially means that the stock has opened near the low and finished near the high.

To recap;

1. Identify the current trend in the market. Trade in the direction of least resistance.


2. Wait for support to become evident and the selling pressure to subside.


3. Use an indicator that identifies a change of momentum.


4. Once the change of momentum is confirmed, ensure that buyers are in control of the stock prior to entry.


5. Although you’re not necessarily going to buy on the bottom (nor sell at the top) using this structure, it’s possible to get a chuck in the middle with a manageable level of risk.