Tuesday, March 20, 2007

Return To 4 – Part 2

In part 1 we introduced you to the concept of Return to EMA 4 using pivot points. A lot of people use the return to a moving average approach but most use the MA 5 instead of EMA 4. I’ve never done any testing of this - I just believe that the EMA approach is superior because it is closer to reality. Here are some more examples –

First we have JCOM.

Here we had a drop through to the EMA 21 and an immediate rebound to form a crossover. That in itself would have been sufficient but here is JCOM with its pivot points –

In this instance it came back up through the pivot point itself. These are 15-minute charts so you could have taken this trade as soon as you saw the rebound occur at 27.95 or so. An hour later the price bumped up against resistance 1 and started printing steeples. You all know how I feel about those. I also annotated this chart with midpoint low, which is halfway between the first support and the pivot point. That would have been a good place for the stop loss.

Next we will review TTWO.

This one gapped up and then slid back to the EMA 4. Did it hit a pivot point?

The answer is obviously “no” so we would pass on this stock.

And last, but not least, we have one from this morning – SIMO. I only wish that I’d had this one.

You can see that it gapped up and then immediately came back to EMA 4 only to rebound strongly and form a crossover. Did it hit a pivot point?

Absolutely - and then it took off. I printed this chart and the previous one early - this stock just kept going from here currently 25.79.

But there is one more chart option I want to show you on this one – an option that you can also use to help inform your trades – here is the pre-market.

You can see from the pre-market that this stock was being traded with great exuberance. When that carries over to the regular hours it is a thing of beauty.

A gap-up like this can work in just about any market. It is just a matter of getting a set in a price range where you can buy in bulk and wait for the set-up to find you before you commit your hard earned cash. When you couple the Return to EMA 4 with the pivot points you get a very powerful trading tool.

The "Return to EMA 4" set-up is not "technical analysis" – it is a trader’s observation and, as such, it is based on real-time price action which, when coupled with TA, makes it especially potent.

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