Missed the initial breakout? Don’t worry – there’s still a chance to catch that rocket! Today, we’re diving deep into a powerful strategy that could be your golden ticket to riding stocks showing massive strength, even after they’ve already launched.

In the ever-evolving world of swing trading, timing is everything. But what if I told you there’s a way to hop on board a strong uptrend, even if you’ve missed the initial breakout? That’s exactly what we’re going to explore today in Part 2 of our series on Mastering Pullbacks to the 20-day EMA.

In this post, we’ll break down a slightly different version of our 20-day EMA pullback strategy. While our previous discussion focused on entering after an obvious breakout to new highs, today we’re zeroing in on that first pullback to the 20-day EMA after a strong thrust off the lows.

To guide us through this powerful technique, we have Rick Pedicelli, our expert with over two decades of swing trading experience. Let’s dive in!

The Strategy: Catching the Post-Thrust Pullback

Identifying the Shakeout

The first step in this strategy is to identify a shakeout. What’s a shakeout, you ask? It’s a situation where a strong stock in a solid uptrend gets hit hard for a few weeks, effectively “shaking out” weak hands.

Rick walked us through a perfect example using the stock SE. Here’s what to look for:

1. An uptrend line break
2. Confirmation of that break
3. Loss of support
4. A sharp sell-off, often breaking below key moving averages

In SE’s case, we saw a nasty sell-off resulting in a near 30% correction. This is the kind of move that scares off most traders – and that’s exactly what we’re looking to capitalize on.

The Sharp Recovery

After the shakeout comes the critical part: a sharp recovery. In SE’s case, we saw a quick reversal that gapped through the 50-day moving average and took out the prior high. This sharp move off the lows is crucial – it’s what signals that it’s “go time.”

The Pullback: Your Entry Opportunity

Now comes the part we’ve all been waiting for – the pullback. What we’re typically looking for is a two to four-week pullback where the price action is mostly constructive. Here’s what to watch for:

1. Price finding support near the 20-day EMA
2. Coincidence with a touch of the prior base high
   3, Mostly constructive price action (though a day or two of higher volume is okay.

Entry Points and Stop Placement

As the pullback progresses, we’re looking for the price action to tighten up around the 20-day EMA. This is where things get exciting. Rick suggests a few potential entry points:

1. Above a key reversal candle
2. During the chop as price action tightens
3. On a small gap up after a downtrend line break

For stop placement, Rick recommends putting it beneath the swing low. This gives the trade room to breathe while still protecting your capital.

Trade Management and Exit Strategies

Once you’re in the trade, it’s all about managing your position and knowing when to take profits. In the SE example, the stock moved up about 20% in a few weeks. Rick suggests two potential exit strategies:

1, Take the quick 20% gain and move on

2. Sell half into strength and hold the other half for a break of the 20-day EMA

Remember, there’s nothing wrong with taking profits when you have them. As the saying goes, “You can’t go broke taking a profit.”

The Secret Sauce: Market Context

Now, here’s the pro tip that can really supercharge your results: always consider the broader market context. This strategy works best when:

1. The overall market is also in an uptrend
2. Even better, when the market has also sold off and had a quick recovery

Ideally, you want to see your chosen stock outperforming the broader market by 2-3 times. For instance, if the NASDAQ recovers 10-15% off the lows, you want to see your stock up 50%.

Key Takeaways

1. Look for stocks that have experienced a sharp shakeout followed by a quick recovery
2. Wait for a pullback to the 20-day EMA over 2-4 weeks
3. Enter as price action tightens around the 20-day EMA
4. Place stops beneath the swing low
5. Consider the broader market context for best results

Remember, this strategy is all about capitalizing on strong stocks that have shaken out weak hands. By waiting for the pullback, you’re getting a better entry point on a stock that’s already shown its strength.

Conclusion:
Mastering the 20-day EMA pullback after a strong thrust can be a game-changer for your swing trading. It allows you to hop on strong trends even if you’ve missed the initial breakout. As always, practice and experience will help you fine-tune your entries and exits.

Keep in mind that while this strategy can be powerful, it’s just one tool in your trading toolbox. Always do your due diligence, manage your risk, and never stop learning.
Happy trading, and remember – trade what you see, not what you think!

Don’t miss out – watch now!

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The post Unlocking Explosive Gains: Mastering the 20-Day EMA Pullback After a Strong Thrust appeared first on Swing Trading Blog | Trading Strategy Articles | Trading Tips.

Our market timing model has a 19-year history of keeping us out of harm’s way when stocks suddenly reverse. Here’s what the model is telling us about the current state of the Nasdaq.

Our stock trading strategy is based on capturing moves of 20-40% (or more) in high relative strength growth stocks in a clear uptrend.

We also like to see the major indices should in a clear uptrend, which puts the wind on our back.

With Monday’s (February 22) close below the 20-day exponential moving average in both the Nasdaq Composite ($COMPX) and S&P Midcap Index ($MDY), the dominant market uptrend is now in danger of reversing.

A closing price below Monday’s low in the Nasdaq Composite would confirm the break of the 20-day EMA, and increase the odds of lower to sideways price action during the next few weeks.

Continue reading to discover why now may be the perfect time to shift out of the Nasdaq and protect your hard-earned profits.

Proven power of the 20-day EMA

As we have seen in the past, there could be a false break of Monday’s low that leads to a quick reversal back above the 20-day EMA. Such a move would negate the sell signal.

No indicator is perfect, but the break of the 20-day EMA is a simple and reliable way to let us know when the wind is no longer at our back.

Prior to now, there have been two previous tests of the 20-day EMA this year.

On the chart below, notice how the 20-day EMA (beige line) perfectly acted as support to keep the uptrend intact:

When doing broad market analysis, it’s also important to look at the longer-term weekly chart time frame to remove the “noise” from the shorter-term charts.

On the weekly chart below, notice the Nasdaq is coming into support of its 10-week moving average.

A few weeks of base building near current prices (consolidation) would be ideal.

Notice the Nasdaq Composite has not touched the 10-week MA since November 2020:

Price action in leading stocks has definitely been ugly in recent days, but we have actually been seeing sector rotation out of tech leadership and into lagging industry groups.

Notice how the blue-chip Dow Jones Industrial Average ($DJI) actually closed positive on Monday with a bullish reversal candlestick:

3 strikes? Time to sit on the sidelines

When determining the health of the market, we first start with the price and volume action in current open positions and leading growth stocks.

We then move to the major indices.

When we get three sell signals (three strikes), we immediately tighten stops on existing positions and avoid new buy entries until conditions improve to generate a new buy signal in our proprietary market timing model.

Currently, we have:

• Strike 1 – New buy entries in our Wagner Daily model portfolio have failed to impress with substantial gains.
• Strike 2 – Top growth stocks have struggled the past few weeks, with little to no follow through on breakout attempts (including failed breakouts).
• Strike 3? – If the Nasdaq Composite closes below its 20-day EMA, the index is no longer in a clear uptrend.

In today’s swing trading report, we notified subscribers that we are now shifting to cash by avoiding new trade entries and greatly tightening stops on the few remaining positions.

CASH is always a valid position–we are quite content to wait on the sidelines and protect our massive gains of recent months.

As history has proven over the years, our rule-based market timing model does a fantastic job of quickly and automatically getting us out of harm’s way when stocks suddenly reverse.

To learn more, press here to see how we preserved gains and avoided massive losses when the major indices plunged sharply lower in late February 2020 (start of the coronavirus sell-off).

Sign up now for your Wagner Daily subscription to be instantly alerted when our market timing model tells us it’s the right time to start buying leading growth stocks again.

The post Nasdaq Selloff: Why It May Now Be Time to Patiently Sit on the Sidelines appeared first on Swing Trading Blog | Trading Strategy Articles | Trading Tips.