Wanted to do a blog on how i like to trade "PULLBACKS". In choppy, sideways markets, i prefer to avoid trading 'breakouts' and instead focus on trading "pullbacks to support". This strategy has a much higher success rate than breakouts as most breakouts tend to fail in choppy markets. Breakouts work awesome in a TRENDING, momentum market but rarely work well in a choppy range-bound market.
The overall stock has been in a BRUTAL CHOP ZONE for well over a month now.
The Utility stocks(See XLU) caught my eye on particular because last week as i noticed the sector has taken a beating. XLU and all Utility stocks were down 9-10 days in a row!! That's extremely rare to see and thought that we have an opportunity to make some money here. Notice how XLU actually crossed thru the lower bollinger bands(see chart) which has almost always led to a bounce shortly after...
So i started to look thru each individual stock in the XLU and SO caught my eyes in particular because it was testing the 200 day moving average after being down 9-10 days in a row.
See chart below of SO daily chart.... which was emailed to ART OF TRADING members. Notice how SO was testing the 200 Day Moving Average but also a trendline retest which now offered us a confluence of support to work with. Risk to Reward definitely favored LONGS, not shorts at this point!
So i zoomed into the 15 minute charts for SO and spotted a nice FALLING WEDGE pattern, so i immediately tweeted, emailed and SMSed all ART OF TRADING members to get long SO;
We booked a cool +$1.50 gain in this SO trade but what made this trade specially nice is that it was a long position which worked really nicely in a week where the overall market took a big hit.
Remember this VERY important rule:
In a very choppy(or bearish) tape, when you have a gain, you want to quickly book profits or raise stops because trends die fast in the chop. So book those gains while you have them!