Quote:
Originally Posted by lewdog
Here's a pattern than can sometimes be a good entry, as long as the risk looks low as far as total loss. It's almost a falling wedge pattern (not sure where this fits) back to a previous breakout pivot. If the stock gaps up and then sells off back to the breakout, on lowish volume, it could be a good entry. If this sold off on high volume, then it's NEVER a good entry.
Prior high of the May/June base was 58.20 before it gapped up. It's falling back slightly below this pivot point as marked by horizontal line on graph. Entry would be buy stop market order 58.20 with stop loss 56.60 (50 day MA) for 2.7% risk. I never risk more than 4% on this type of entry as there is absolutely still possible to see more selling off. The reward here is 58.20 entry with possibly retrace back to $65 for 11% gain. 4:1 risk/reward.
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I wouldn't call that a wedge but that's me. What it is though is "filling the gap" which stocks have a strong tendency to do. That being said it is a good entry point.
Also from a purely technical analysis perspective your "pivot point" isn't a true pivot point. Pivot points are calculated for day trading based on the previous day's OHLC.
What you have highlighted is a classic example of resistance becoming support, assuming it holds. Again, you are right about the approach but I think your verbiage is a bit off is all.