Using Pullbacks to Avoid almost Certain Losses

This article attempts to bring to you knowledge of how to avoid losses that occur due to some common investment and trading mistakes. Many of us who invest in the market use techniques like stop loss etc to avoid major losses but still suffer from losses though they might be just minor losses. The strategy of using pullbacks as a timer to prepare to buy into a stock is a very successful strategy and utilizes simple analysis of the company’s health and keeping track of what’s buzzing in the news. This article places emphasis on caution before buying into a stock suffering from pullback and carefully illustrates when and why to buy in and how to avoid a loss with pullback.

When is the Right Time to Enter a Stock Trade?

This is a question that has befuddled many investors. They usually attempt to place their bets after hearing good news and repent later when they find their stocks plunging. Those investors who use the stop loss techniques also suffer minor losses. Almost 90% of the traders use this techniques hence almost 90% of traders suffer losses. Our suggestion is to wait for a pullback and then buy a bullish stock that’s making news.

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What is a Pullback and why is it a Good Entry Point?

A pullback simply stated is a slight loss in upward momentum of a stock price, as it cools off after making recent highs. It is a temporary fall and a strong stock can easily recoup such losses in a stride. Pullbacks are considered to be excellent opportunities to buy into a stock which is fundamentally strong and showing healthy growth signs. The current loss in momentum would last only for a short duration as it might have been triggered by some bad news, like some senior management has retired or someone has been selling his shares to gain profit.

Basic Pullback Strategy: Determining if it’s just a pullback or the stock is headed for trouble?

Now that you see a pullback you need to carefully analyze the reason as to why this stock has shown a pullback. Our analysis should include scope for finding whether the company is in for irreversible trouble which may lead to the stock never going up. It would help us to wisely invest our money and avoid losses. Company’s history, current profile, latest news regarding the company would prove to be an excellent database to help you in your investment research.

Whilst that would be highly unlikely, as a minimum a quick search of news of the company on the day of the pullback should uncover anything we need to be wary of. However one thing is certain if there is no serious problem with the company and it has been showing upward rise for the past time it will rebound from the pullback soon.

Before buying into the stock, decide on a level just above the price the stock was at before it suffered from the pullback. This is the level you should wait for the stock to come back up to before you buy in. This minimum level a stock will have to cross and only then you should buy in. This help you save yourself from stocks that have been hit badly and might never recover, hence protecting you from a loss.

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An Example of a Stock Pullback