This is a never ending debate and a subject which is constantly argued about by traders and everyday I get emails from members asking how can they buy pullbacks before the breakout. There is almost an obsession for some people, they want to be in stock before breakout.
Ed Seykota was asked this question in a seminar and his reply was (I am paraphrasing his words)
"Traders who buy on pullbacks may miss some major movers that don't pullback and are sure to be in all the moves that fail to follow through. Buying pullback ensures you will be in most reversal moves."
In the stock market you can buy breakouts and make money. You can also make money buying pullbacks. There are hundreds of breakout based methods in public domain on both side. If you are interested in buying pullbacks then look at the RSI2 method which I have shared before. It buys pullbacks.
As a general observation after studying the markets for last 12 years or so and especially studying stocks which go up 100% plus in a year or 25% plus in a month, I can tell you that if you are primarily a pullback trader you will miss out on some of the best opportunities in the market.
But because market is so vast and you have 10000 stocks to play with there are also enough pullback opportunities. It is not very difficult to develop pullback methods. The most commonly used approach to developing pullback methods are:
The key to trading pullback again boils down to selecting the right kind of stocks to trade pullbacks on. Some stocks like momentum stocks or growth stocks are best traded using breakout methods. Because they are very prone to sudden burst of momentum phases which can go vertical without any pullbacks.
See these three stocks:
By the time you get first pullback the move might be over. You can hope for a pullback but the stock is not obliged to offer you that low risk buying opportunity. That is the nature of small caps and stocks with above average momentum.
As against that look at these stocks:
These kind of stocks will give you nice pullback buy opportunities. Because the trading dynamics behind them is very different. These are large mature businesses that have large fund holding and everytime they dip below a certain level buyers step in. that is why if you study carefully the hundreds of pullback systems which have shown to be performing well in backtest, they typically use S&P 500 or Nasdaq 100 as their universe. Same way if you want to trade say the S&P mini or Nasdaq mini or any YM mini you will see pullback based methods work best. Both pullback based and exhaustion based methods tend to do well on established markets. They also tend to do well in range bound markets and may not do well in bull markets or highly trending markets.
If you want to develop pullback based method then you need to work at it for months and trade it in live and then perfect them. For me breakouts work and I spend my time and energy on breakouts. I have cumulative 12 years and thousands of trade experience of trading breakouts and I have done very well using them so I stick to them.
One of the key points Mark Minervini emphasized in his seminar was to find a method that suits you and then perfect it by going in to microscopic details on it. He gave an example of Warren Buffett and Bill Gates. Saying both are very good friends , then why Buffet has not bought Microsoft shares. Because his expertize is value investing and he sticks to it. He has significant edge in doing whast he does. He does not go around becoming a growth investor or CANSLIM investor next.
Recently I was reading a book on hedge fund managers. They were all leading hedge fund managers and some of them suffered big losses in 2008, and they were asked what was one of the biggest mistake they did and most said that their big mistake was to trade too many strategies. They said that when they started their hedge fund they had core set of strategies they traded and were very successful with them for years. But then they got in to the game of becoming multi strategy hedge funds trading different markets and strategies and then they lost their edge and their core goal after 2008 debacle was to gt back to their core strategies.
As against that most novice want to trade a bunch of styles. They want to be day trader, Cramer followers, growth investors, turnaround traders, macro traders, quant traders, value traders, options traders, futures traders and whatever else they might hear of next. They want to trade pullbacks, breakouts, exhaustions and in doing so they are too exhausted. It does not work so they go from one site to another site, from this book to that book, from this newsletter to that newsletter and in the process blow up their account.
As against look at people like Minervini , he trades one method and has been at it for 15 years. It took him 10 years to develop and fine tune that method. Look at Dan Zanger he trades very simple breakout method and he has perfected it over many years. Before doing that he blew up 3 times. Look at any other traders who has survived the learning curve and prospered for 10 years and you will see that they trade very few setups but on that setup they have extensive experience.
Why is this focus on setup important. There is very good reason for it. Because your brain works in certain manner when it comes to developing procedural memory. If you try and beat the rules of how procedural memory works you will never succeed. Procedural memory is extremely task specific. It is built as a mechanism to overcome cognitive load. It allows you to perform a task efficiently once developed. Once you develop one procedural memory and then attempt next thing , the mind can handle it. That is why setup selection is key. You select a setup and develop a procedural memory to trade it. That is how you become good at it.
Trading psychology is about understanding how your brain and mind works and manipulating it to become profitable trader. It is extremely important to understand procedural memory and how it works and how it is developed if you want to be successful and profitable trader.
And if you study procedural memory you will realise how you are daily self sabotaging your own procedural memory development.
Are you serious about your trading?
If you are serious about your trading and want to build an enduring edge the Stockbee Member site might help you. Members tell me they have tried lot of things before coming to my site and it has offered them the most extensive and detailed methods to swing and position trade.
It is only for those who want to develop their own self sufficient trading method. It is not a stock picking service. It is service for you to build your own scans and trading method to have your own daily pick based on your method.
Be warned it will take you time to learn to trade. Learning to trade is difficult art and unless you are willing to spend months or years to perfect your strategy and also develop your mental edge you are unlikely to succeed in this game. Unless you understand that no site, no service, and no mentoring is going to work.
Why traders come to stockbee?
The member site is one of the most recommended site for learning to trade by other traders and bloggers. You will see no advertising, no hard marketing, no promotions, no free offers, no affiliate marketing, no incentive to other bloggers to promote the site, no constant twits self promoting the site, no free trial and no tall claims of making you instantly wealthy, and yet the site attracts new members everyday. Members come from all walks of life and all kinds of trading size and trading styles.
You will see that many trading bloggers have been using my market timing methods, scans , stock ranking lists and chart templates. They have developed their own methods based on my methods. Many paid newsletter site recommend my site to their subscriber for learning about trading and market.
Over the years thousands of traders have been members and those who benefited from the learning talk about the site to others or talk about the methods used and that is how new members learn about the site.
What will I learn in the members site?
The members site will give you in depth understanding to develop your own trading method. The emphasis is on making you self sufficient and confident of your own trading method and style.
As a member you will learn the basics of swing trading, momentum investing, growth investing and risk management.
You will learn about Stockbee Trend Intensity Breakouts method that uses momentum based swing trading to find 3 to 5 day swing trades for 8 to 40% profit.
You will learn about Stockbee Episodic Pivots Breakout method which uses Post Earnings Announcement Drift (PEAD) to find stocks that had a game changing earnings and that are likely to rally for 3 months to 12 months.
You will learn about Stockbee Dollar Breakout method that uses momentum, range expansion and swing trading approach to find 5 to 40 dollar moves in high priced stocks.
You will learn about Stockbee Lemonade Strategy for 401k which uses market timing and momentum to invest in 401k. You will get weekly update on how I am using the strategy on our 401k to do allocation decision.
You will learn about Stockbee Market Monitor method for market timing using breadth. It allows you to avoid risky periods in market and allows you to identify market turns. It is used for 401k allocation decisions.
You will learn about Stockbee Double Trouble method to find stock with confirmed upside momentum using anchored momentum and that are likely to continue their up move.
You will learn about Stockbee Night Time is Right Time method to find news catalyst based trade ideas for short term day trade and swing trade.
You will learn about Investor's Business Daily’s IBD 200 list and how it can be used to find swing trading candidates for explosive moves.
You will learn about Telechart 2000 and how to use it effectively to scan for swing and position trade ideas and to set up your 401k strategy.
You will learn about Jesse Livermore Range Breakout, Darvas Box setup, and many other member shared methods.
You will learn how to set up your own scans, select right kind of stocks, how to set up stops, when to enter , when to exit, how much to risk, how to track your trades and all other details about trading. You will learn about developing your own methods and not relying on others for trade ideas.
The site has hundreds of videos and trading methods and variation of methods. Members help each other in developing the methods and share actively their research and finding. A collaborative spirit allows you to get input from others on your trading ideas or problems.
The site gives you opportunity to interact with some of the most successful traders and learn from them about their trading methods. It is a vibrant community with members from different background and experience willing to help each other. The emphasis is on continuous learning and up gradation of market knowledge and setup knowledge. The members range from hedge fund employees, financial advisers, active swing traders, investors and new traders.
If you are looking to develop your own trading strategy the membership site might be for you. You have to be willing to put in the effort to build your own method. There are no silver bullets offered on members site. Every method, every scan, every nuance is detailed and all possible help is offered to design your own method.
Do you have a trial?
If you are just looking for trial you are better off trying thousands of other trading sites that offer free trial or one month trial and offer you promise of riches.
It is for those who are ready beyond the trial phase and ready to put serious months or years of efforts to learn to trade on their own. It is for those who want to learn to find their own fish.
The free blog has all the details about the methods I trade and if you go through the posts highlighted in the sidebar you will learn about them.
How can I become a member?
To sign up go to www.stockbee.biz and follow the sign up process. The site uses Paypal for payment processing.