Missing an explosive stock breakout can be disappointing, but patient traders can also generate massive gains by simply waiting for a low-risk pullback entry that often follows. Here’s how we used this winning pullback trading strategy to score a +28% gain in Arcimoto ($FUV) in just a few days.
When swing trading stocks, it is crucial to continually maintain a solid watchlist of stocks to potentially buy on strength and weakness.
While reviewing your watchlist on a regular basis, you will inevitably encounter an explosive growth stock that broke out and rocketed higher–but without you in it!
Although it is easy to feel that you’ve missed out on potential opportunity when this happens, there is no need to be discouraged.
Rather, simply place it on your watchlist and monitor for a low-risk buy entry, such as an orderly pullback to the rising 10 or 20-day exponential moving average.
Subscribers of our flagship swing trading report, The Wagner Daily, recently netted a +28% gain through buying a pullback in Arcimoto ($FUV) and selling just six days later.
Continue reading to discover exactly how you too can profit with this basic strategy for buying pullbacks of explosive breakout stocks.
Low-risk Buy Entries Allow For Tighter Stops
When we added $FUV to our Wagner Daily watchlist, the stock was already consolidating for several months, after digesting a massive +200% rally in November.
When trading volatile and fast-moving stocks like $FUV, we focus on finding low-risk buy entries because they allow us to enter with protective stops of less than 10%.
For many explosive stocks, it can otherwise be difficult to utilize such a relatively tight stop.
This is especially true when buying such a stock on a breakout, rather than a pullback.
The Pullback Buy Setup
As shown on the chart below, $FUV cleared resistance at the $15 to $16 range on January 11 & 12, on a pick up in volume (a bullish signal).
We did not buy the initial breakout, but placed $FUV on our radar to monitor for a potential pullback or bull flag type entry.
$FUV pulled back to the $15-$16 area on January 14, 15, and 16, where it found support of its rising 10-day exponential moving average and prior horizontal resistance level (which became the new support).
Volume decreased on the pullback, which is a bullish sign that tells us the sellers are not immediately stepping in when the buyers take a break.
The inside day that formed on January 16 was key, as it indicated a tightening of price volatility.
The daily chart of Acrimoto below shows the pullback buy setup at the time of entry:
Volatility eventually needs to expand after it contracts, but the price can resolve in either direction.
However, since $FUV was a light volume pullback within a bullish consolidation, we knew the odds favored an upside volatility expansion if the price takes out the high of the inside day.
As such, we listed $FUV as an official buy setup in the January 20 issue of our swing trading report.
Arcimoto triggered our buy entry when it rallied above $17.26 that day, closing the session with an unrealized gain of +6%.
The Exit Strategy
$FUV ripped approximately 20% higher just one day after our pullback buy entry, prompting us to alert subscribers that we were selling half of the position into strength for a +26% gain (on January 21).
We intended to keep a loose stop on the remaining shares to maximize profit, but significant relative weakness in growth stocks on January 25 and 26 made us a bit cautious.
As such, we decided to aggressively raise our stop to lock in a +30% gain, which triggered on January 27.
The exit points on the $FUV pullback trade are annotated on the chart below:
If market conditions for growth stocks were not deteriorating at that time, then we probably would have held the remaining half position using a break below the 10-day exponential moving average as a sell signal.
Nevertheless, we scored a handsome average gain of +28% on just a six-day hold.
The pullback trade setup also enabled us to have a relatively tight stop, which provided us with an excellent reward-to-risk ratio of 5 to 1 at the time of entry.
Of course, not all pullback trade setups work out this well (and so quickly), but the best stocks often do.
The next time you miss an explosive breakout in a hot stock you’ve been stalking, simply be patient and wait for the low-risk pullback entry that will likely follow.
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