10 Proven s for Pulling Back and Breaking Out
There are numerous ways to approach the stock market, whether you’re an investor looking to grow your savings or an active trader who gets involved in all kinds of volatile stock activity in order to score big on your investments. Regardless of how you trade, it’s important to understand pullback and breakout trading strategies so that you can maximize the potential rewards while mitigating risk whenever possible. Here are 10 proven trading strategies that will help you do just that.
Strategy 1: BUY Breakouts
Since the trend is up, it is a good time to buy breakout stocks. The stock will break out of a range or trading pattern, which signals that buyers are taking control. The idea behind this strategy is simple: buy stocks when they break out of their trading range or pattern.
Strategy 2: SELL Breakouts
If you believe in the strength of the trend, sell breakouts.
This technique is also known as setting up a stop-loss order on the breakout. As soon as prices break out of an upward or downward trend, sell your position. This will limit losses if prices start to reverse.
For example, if a stock has been trending up for five days and then breaks out to new highs by going above $50 per share, it’s time to sell that stock.
Strategy 3: Wait for Stops
One of the best strategies to use is the wait-for-stops approach. This strategy is simple. As a trader, you buy a stock that has been going up in price over time and wait until it hits a stop-loss point. If the stock’s price falls below this point, then you sell your shares at that point in order to avoid any further losses on your investment.
Strategy 4: Stay Near Support
This strategy is all about staying near the support that has been established. When you stay near the support, you want to make sure you’re not too close or too far away from it. It’s best to stay within a range of 2-5%. This will help ensure that if there is a break out, you’ll be ready for it.
Strategy 5: Know When to Sell Into Strength
Know when to sell into strength by using a stop-loss order. This will help you avoid getting stopped out of your trade. If you’re in a long position, it’s time to sell when the price hits your stop-loss order. If you’re in a short position, it’s time to sell when the price hits your stop-loss order.
Strategy 6: Buy Stocks on Dips in Volume
This strategy is the easiest to execute. It’s all about buying stocks on dips in volume. Remember that volume represents the number of shares traded, so it’s best to buy when there is a lower trading volume. However, this strategy can also be used as a way to identify stocks that are undervalued before they rise back up and break out of their current range.
Strategy 7: Wait For Support To Be Broken
A pullback usually happens when an asset’s price is moving higher on momentum. However, it can also happen after a strong move up in price. A pullback is typically a retracement of between 10-30% of the prior rally or decline. The process of trading pullbacks requires patience to wait for support to be broken on either the downside or the upside.
Strategy 8 : Don’t Overtrade!
Too much trading can be just as costly as too little trading. In fact, traders are more likely to lose money when they trade too often than when they trade too little. When deciding to buy or sell, always consider the following:
- Is your risk-reward ratio favorable?
- What is the trend of the stock or ETF?
- What is your overall market sentiment?
Strategy 9 : Cut Losses Short
When you are trading, you should be aware of the risks involved. One strategy that helps reduce those risks is to cut losses short. When a trade does not work out as planned, it’s important to take action quickly in order to limit any losses. To do this, you can use a predetermined stop loss on each trade or set your stop loss at an arbitrary price that is high enough to mitigate your risk.
Strategy 10 : Capture Trends Early On
Trends don’t last. If you’re early, you can make a lot of money. – James J. Wannamaker Jr.
Most traders have been in a position where they missed out on the early stages of a trend, and by the time they realize what’s happening it has already died out. In order to avoid this scenario, you need to learn how to identify trends early on so that you can take advantage of them when they are still in their infancy.
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