{"id":5694,"date":"2019-11-06T11:58:04","date_gmt":"2019-11-06T16:58:04","guid":{"rendered":"https:\/\/morpheustrading.com\/blog\/?p=5694"},"modified":"2022-04-06T15:04:58","modified_gmt":"2022-04-06T19:04:58","slug":"pullback-trading-breakouts","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/pullback-trading-breakouts\/","title":{"rendered":"How To Buy Top Stock &#038; ETF Breakouts On A Pullback"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/pullback-trading-breakouts\/#Pullback_trading_is_a_fantastic_way_to_buy_the_best_stock_and_ETF_breakouts_without_chasing_the_price_Heres_a_simple_and_effective_way_to_profit_from_trading_breakouts_on_a_pullback\" >Pullback trading is a fantastic way to buy the best stock and ETF breakouts without chasing the price. Here&#8217;s a simple and effective way to profit from trading breakouts on a pullback.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/pullback-trading-breakouts\/#Overview_How_It_Works\" >Overview: How It Works<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/pullback-trading-breakouts\/#Identify_a_breakout_from_a_valid_basing_pattern_in_a_stock_or_ETF_that_has_moved_higher_on_increasing_volume_and_is_part_of_an_industry_group_with_relative_strength_to_the_broad_market\" >Identify a breakout from a valid basing pattern in a stock or ETF that has moved higher on increasing volume and is part of an industry group with relative strength to the broad market.<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/pullback-trading-breakouts\/#How_We_Bought_Semiconductor_ETF_SMH_On_A_Pullback\" >How We Bought Semiconductor ETF ($SMH) On A Pullback<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/pullback-trading-breakouts\/#Top_4_Tips_For_Profitable_Pullback_Trading\" >Top 4 Tips For Profitable Pullback Trading<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Pullback_trading_is_a_fantastic_way_to_buy_the_best_stock_and_ETF_breakouts_without_chasing_the_price_Heres_a_simple_and_effective_way_to_profit_from_trading_breakouts_on_a_pullback\"><\/span><a href=\"https:\/\/www.freeonlinetradingeducation.com\/bull-pullback.html\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-5704\" src=\"https:\/\/new.morpheustrading.com\/blog\/wp-content\/uploads\/2019\/11\/pullback.jpg\" alt=\"trading pullbacks\" width=\"380\" height=\"362\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2019\/11\/pullback-110x105.jpg 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2019\/11\/pullback-300x286.jpg 300w\" sizes=\"auto, (max-width: 380px) 100vw, 380px\" \/><\/a>Pullback trading is a fantastic way to buy the best stock and ETF breakouts without chasing the price. Here&#8217;s a simple and effective way to profit from trading breakouts on a pullback.<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The majority of swing trade stock picks in our 17-year old nightly newsletter,<em> The Wagner Daily,<\/em> are set up to buy <em>before <\/em>an obvious breakout above resistance.<\/p>\n<p>However, even the most astute trader cannot possibly catch <i>every <\/i>great breakout before it happens.<\/p>\n<p>As such, you need to maintain a pullback trading strategy in your arsenal to take advantage of short-term weakness in uptrending stocks with relative strength.<\/p>\n<p><strong>Continue reading<\/strong> to see a real example of a breakout stock\/ETF we recently bought on a pullback, followed by our top four tips for successful pullback trading.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Overview_How_It_Works\"><\/span>Overview: How It Works<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>We generally prefer to buy a breakout stock below the range high whenever a tight trading range develops near a key moving average, such as the 20-day EMA or 50-day MA.<\/p>\n<p>Not all stocks that break out will produce a low-risk entry point on a pullback. But for those that do, the pullback setup helps identify a low-risk entry point and prevents chasing the price action higher.<\/p>\n<p>Our pullback trading method for buying breakout stocks is based on William O&#8217;Neil&#8217;s famous <a href=\"https:\/\/www.investors.com\/ibd-university\/can-slim\/\" target=\"_blank\" rel=\"noopener noreferrer\">CAN SLIM&#x2122;<\/a> stock trading strategy. In a nutshell, here&#8217;s what we look for:<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Identify_a_breakout_from_a_valid_basing_pattern_in_a_stock_or_ETF_that_has_moved_higher_on_increasing_volume_and_is_part_of_an_industry_group_with_relative_strength_to_the_broad_market\"><\/span>Identify a breakout from a valid basing pattern in a stock or ETF that has moved higher on increasing volume and is part of an industry group with relative strength to the broad market.<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A &#8220;valid basing pattern&#8221; is explained <a href=\"https:\/\/new.morpheustrading.com\/blog\/best-stock-breakouts\" target=\"_blank\" rel=\"noopener noreferrer\">here<\/a>.<\/p>\n<p>Increasing volume is the footprint of mutual funds, hedge funds, and other institutions accumulating the stock or ETF.<\/p>\n<p>As such, volume should surge higher than average to confirm each breakout.<\/p>\n<p>At a minimum, volume should swell noticeably higher than the average volume of the previous ten days.&nbsp;<\/p>\n<p>Once a breakout setup is located, we then put the stock or ETF on our internal watchlist and monitor the price action for a two to three-day pullback.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_We_Bought_Semiconductor_ETF_SMH_On_A_Pullback\"><\/span>How We Bought Semiconductor ETF ($SMH) On A Pullback<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>On October 31, we began stalking Vaneck Semiconductor ETF ($SMH) for potential buy entry after it broke out the previous week, then gently pulled back for three days.<\/p>\n<p>&nbsp;In the November 1 issue of <strong><em><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\">The Wagner Daily<\/a> <\/em><\/strong>report, we shared the following chart and technical analysis of $SMH with subscribers:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2019\/191101SMH.png\" alt=\"$SMH daily\" title=\"\"><\/p>\n<p>Here is our actual commentary that accompanied the chart above:<\/p>\n<blockquote>\n<p>&#8220;We have one new official setup for Friday in the model portfolio. $SMH closed with a bullish reversal candle on Thursday after an orderly three-day pull back off the recent high, which reversed just shy of the 10-day MA. Money has been flowing into semiconductor stocks the past two weeks. Grabbing some $SMH on a pullback will give us some exposure while we wait for better setups to emerge.<\/p>\n<p>We are placing a buy stop order above Thursday&#8217;s high. The protective stop is below the 20-day EMA just to give the trade some breathing room.&#8221;<\/p>\n<\/blockquote>\n<p>After $SMH broke out to a new high in late October, lower volume accompanied the pullback for the first two days off the high&#8211;check!<\/p>\n<p>Volume increased on the third pullback day,&nbsp;<em>but<\/em> the stock formed a bullish reversal candlestick by closing near its intraday high (which is fine).<\/p>\n<p>Although we set our initial stop below the $124 level, it also would have been fine to set a stop for <em>half<\/em> the position below the low of the reversal candlestick, with a stop below the 20-day EMA for the rest. There is no right or wrong here&#8211;it&#8217;s just a matter of preference.<\/p>\n<p>$SMH immediately followed through and zoomed higher after triggering our buy entry, which is nearly always a great sign:<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/~rick\/\/charts\/2019\/191106SMHBLOG.png\" alt=\"$SMH daily\" title=\"\"><\/p>\n<p>As of the November 5 close, our $SMH swing trade is already showing an unrealized <strong>gain of roughly +4% just two days<\/strong> after our entry.<\/p>\n<p>From here, we will continue to monitor the price action to maximize the gain. As always, we will promptly notify <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>newsletter<\/strong><\/a> subscribers when it&#8217;s time to exit the trade and lock in the gain.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Top_4_Tips_For_Profitable_Pullback_Trading\"><\/span>Top 4 Tips For Profitable Pullback Trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>1. The pullback should generally consist of <strong>two to three days of &#8220;lower highs&#8221; and &#8220;lower lows.&#8221;<\/strong> Two lower highs and lower lows along with an inside day is fine as well. An <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inside-days.asp\" target=\"_blank\" rel=\"noopener noreferrer\">inside day<\/a> occurs when a bar&#8217;s price range is completely contained within the prior day&#8217;s trading range.<\/p>\n<p>2. The pullback should be marked by <strong>orderly price action and decreasing volume.&nbsp;<\/strong>&#8220;Orderly price action&#8221; means the intraday trading range of each day should be about the same. However, reversal candlesticks can be a bit more volatile.&nbsp;<\/p>\n<p>3. Avoid pullbacks with several days of volatile price action and\/or pullbacks with significant opening gap downs. Unlike #2 above, such this is often negative and can indicate the balance of power is shifting to the bears (price exhaustion).<\/p>\n<p>4. Avoid pullback setups where volume during the pullback is higher than volume during the preceding rally. Just as higher volume on a breakout indicates institutional accumulation, <em>lower volume on the pullback means the bears are NOT&nbsp;quickly stepping in<\/em> to sell when the bulls are taking a rest&#8211;the hallmark of relative strength trading! <strong>Remember that volume doesn&#8217;t lie <\/strong>and is one of the most reliable technical indicators at your disposal!<\/p>\n<p><em><strong><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\">Subscribe now<\/a><\/strong> to receive our best swing trading stock picks and educational technical analysis&#8211;delivered nightly to your inbox.<\/em><\/p>\n\n\n\n\n","protected":false},"excerpt":{"rendered":"<p>Pullback trading is a fantastic way to buy the best stock and ETF breakouts without chasing the price. Here&#8217;s a simple and effective way to profit from trading breakouts on a pullback. The majority of swing trade stock picks in our 17-year old nightly newsletter, The Wagner Daily, are set up to buy before an [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":5704,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-5694","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5694","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=5694"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5694\/revisions"}],"predecessor-version":[{"id":11186,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5694\/revisions\/11186"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media\/5704"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=5694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=5694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=5694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}