Stock Option Class

BWRC: Bullish, Week, Reversal, Confirmed

Bullish Stock Trade

Focus on stocks that have corrected more than 10% in the last few months, but still have a two to three year up trend.
Look for recent relative strength to the market.
The potential up reversal should be forming above the two-year trend lines and ideally above the 200 day moving average.
The pullback should be the result of sector rotation or a drop in the overall market. Avoid stocks that are relatively weak within their sector and have recently released material negative news.
Rallies should be accompanied by volume increases.
Look for signs of strength by using technical indicators like RSI and Money-flow.

Look for fairly deep troughs within a two-year up trend. The trough will provide the stock with plenty of “head room” to move higher over the course of a week or two.
This trade may take days to unfold. Try to scale in and average your entry cost.
Give the trade some breathing room and don’t place protective stops too close. Longer-term support levels can be used for protective stops.
The profit/loss percentage per trade will be larger than it is for Day trades. You don’t want to get “shaken-out” of a sustained move so you must be willing to give the trade more latitude.
If overall market conditions are deteriorating, consider reducing the position.
If the move has not materialized in a week, exit the position and keep the stock on a watch list for future consideration.

A bullish reversal can only occur if the stock has sold-off. Be prepared to trade against a recent down trend.
These stocks have reached a critical juncture. They may be in the beginning stages of establishing a downtrend, or they may be consolidating and preparing for the next leg higher. Focus on good stocks in strong sectors. Get intimate with the stock and determine which “camp it is in”.
The overall market should be stable to bullish. 75% of all stocks follow the market. These positions are carried for longer periods of time so they will perform best when the macro environment is supportive.
Move the protective stops higher as the stock moves up and take partial profits at prior resistance levels.

These stocks have formed a pattern and have moved through an important price level today. The reversal appears to be legitimate.
This is a longer-term trade so don’t be afraid to “scale-in” and average your cost over a few days. A small initial position will allow you to gauge the stock’s strength without taking as much risk. If the stock performs, consider adding to the position.
If the stock has “confirmed” on a big up gap, wait for a pull back to the middle of the day’s range before establishing the first leg of the scale-in. This trade will last a week or two so there will be other opportunities to get in. If not, there will be many other trades.
Be patient.