|For newer traders who might assume that the strategy of buying dips during a strong uptrend is the only way to trade effectively, the concept of buying a stock that is still surging higher can at first seem to be illogical and even a bit frightening. Both methods can and do work depending on the situation, but for now let's simply focus on the daily chart of Pall Corp. (PLL) and look at the buy-high, sell-higher type of trades setup that is being offered to aggressive traders. See Figure 1.|
|FIGURE 1: PLL, DAILY. Buy high and sell higher? Well, yes, that's the big idea here -- whether it will play out that way is the $64,000 question.|
|Graphic provided by: MetaStock.|
|Graphic provided by: RMO system indicators from MetaStock 11.|
|PLL has had a nice runup since turning higher along with the broad markets in early October 2011, surging from $39.81 all the way to $58.20 in a little more than two months. While some traders and investors might very well come to the conclusion that the stock has gone too far, too fast, there is another universe full of traders who see this stock as a likely candidate to continue its run higher, even though any further runs higher may come with some selloffs and/or pullbacks along the way. Here's a brief summary as to why PLL might be worth considering on the long side right now:|
1. The new RMO (Rahul Mohindar) swing buy signal that just printed (see green oval)
2. The positive long-term money flow histogram (CMF)(100)
3. The strong uptrend line -- and the powerful bounce higher after it acted as powerful price support
4. The fact that the RMO buy signal trigger price of $58.21 is only a $1.10 shy of the stock's 52-week high.
PLL also features strong comparative relative strength versus the .SPX, yet another mildly bullish element to consider here. The simplest way to trade this setup is to wait for the RMO signal bar's high of $58.20 to be exceeded and then to trail the position with a two- to three-bar trailing stop of the daily lows. Then simply hold on until final stopout -- win or lose -- making sure you risk no more than 2% of your account equity on the trade, no matter what.
Even though this appears to be a very sound long trade setup (if triggered), the fact remains that breakout trades can and do fail and that reversals can be sharp when they fail. So play it safe, enter on strength, and use wise trade management and risk control. Now that's the way to trade smart.
|Title:||Writer, market consultant|
|Company:||Linear Trading Systems LLC|
|Jacksonville, FL 32217|
|Phone # for sales:||904-239-9564|
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