Thursday, February 15, 2007

Return To 4, Return To 8 - Daily Charts

Here are some more examples of entry methods - this time on a longer time frame for those of my readers who would prefer a swing trade or maybe a little longer time horizon.

First we have GES - showing a classic Return to 4. It also has a BOB and a crossover. The BOB came first and this time happened to involve a cross over formation (a positive body across both EMA 4 and EMA 21). Both of these things suggest something good is going to happen. But if you bought the next day you would have had the stock start going down. Now if you watch the stock for awhile and don't set your stop too close you will see it hit the EMA 4 and then rebound.

Next we have PCU and it is showing a Return to 8 (although I have been known to call this "retreat to 8 so as not to confuse it with return to 4), a modest cross over and a dummy spot. Normally I would have bought this off the confirmation of the dummy spot on the next day, but buying it off the cross over would have been just fine and, if after all that you wanted more of an indicator - the return to 8 was looming with a very nice bounce and buy. That was 6 points higher than the dummy spot but a world higher in probability of success i.e. lower risk.

And that is what it is all about - risk, risk, and more risk. Each of the entry methods on these two charts possess their own risk factors (fair, better, best) and you have to make your decisions appropriately.

The way you can find these is to set up a monthly view of the daily charts against a watchlist in any one of the many free charting services that are available and then just walk through the charts one by one. You can do this late Sunday evening. As you go through them print out the ones that look promising (or copy them into a separate file) and keep going. Once you have a collection or 8 or 10 candidates then do your due dilligence, check whatever fundamentals need to be checked - review when earnings are going to be announced and then put your favorites on another watch list and watch it. Make your buys when it's appropriate.

And needless to say but I will anyway this is not an invitation to speculate in the stock market and past performance is not to be construed as an indicator of the future.