There’s no question that technical analysis is tricky. Learning how to take a stock chart and make a profit producing prediction takes years of study and experience. But with a decade of technicals under my belt, I’m here today to show you why there’s only one long-side pattern you need to know to profit from this market.

It’s time to dissect the Pullback Off Highs…

The Pullback Off Highs pattern is one of the most bullish and constructive long-side set-ups out there. Rather than moving straight up, an index or stock will make a move higher, then spend some time consolidating those gains often down to an area of chart support such as its 50-day moving average, before making another move into new high ground.

When a stock clears these consolidation periods, it’s your opportunity to buy them and take advantage of the next run. The bonus part is that when you catch a stock at the beginning of a new uptrend, you’ll often get to trade the stock and lock in profits over and over again. That’s because buying it at the point where it’s just started a new move and is near support, which minimizes your risk. Here’s a recent example

In the chart above are 3 things you ALWAYS want to be on the lookout for:

1. Defined Uptrend

The stock should be in a clearly defined uptrend and above the 50-day moving average, the thin line above that represents the average share price over the trailing 50 days. Moving averages are technically significant – in this case, the 50-day moving average acts like support, halting share prices should they move lower after our trade triggers.

2. Pull Back to Trendline Support

We always want to see a stock that’s sitting right above trendline support as well (thick green line). Stocks bounce off their trendlines, so we want to take our position just before a stock starts its bounce back up. Trendline support also happens to be the 50 day average in this case.

3. Oversold Stochastics

Full stochastics were in oversold position (the green circle) in the chart above and that’s just what we want. Stochastics, an indicator of a stock’s momentum, give us a glimpse at just how overextended a stock’s price is at any given time. When a stock is oversold, it’s time for us to buy.

Once you see all three things, there is only one more step you need to know after that: Draw a trendline off the most recent highs (pink line). That’s what we commonly refer to as a Pullback Off Highs Line. Then it’s all about an upside crossover of the stock’s share price above that line. That crossover is your entry point.

Sincerely,
David Grandey
AllAboutTrends.net

December 8, 2009

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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