Important Stocks To Watch - Stocks At Or Near 50 MA, 200 MA, Chart Patterns

Correction To Weekly 20 MA Trading Strategy

In this trading strategy, we wait for the stock to have a correction to the weekly 20 MA. Then we look for a bullish reversal candle.

correction to weekly 20 ma trading strategy

The weekly chart of AAPL above shows us how the trading strategy works. Of course we will be using the weekly chart so you need to be patient to wait for a correction to the 20 MA. The red line is the 20 moving average. As you can see, AAPL stock drop to the rising 20 MA and it bounced off it. That is when you need to buy the bounce.

Criteria And Trade Management

In order for a stock to qualify as a setup for the trading strategy you will need:

  1. Stock must correct to the rising weekly 20 MA
  2. The correction must be gradual and not be a huge sell off
  3. There must be a bullish reversal candle chart pattern (ex...bottoming tail, bullish engulfing etc) 
  4. Buy the stock when it trades above the entire candle chart pattern
  5. Put a stop loss below the entire candle chart pattern
  6. Sell 1/3 or 1/2 when the stock gives you a 1:1 risk:reward return
  7. Ride the other position higher and raise your stop loss to breakeven

If you see the stock making a weekly bottoming tail, then you buy the stock when it trades above the highs of the bottoming tail. You then put a stop loss below the lows of the bottoming tail. If you find a bullish engulfing pattern appearing, then you will buy the stock when it trades above the highs of the entire bullish engulfing pattern. Then you put a stop loss below the entire bullish engulfing pattern.

With regards to taking profit, if you risk $1000 on the trade, you should take 1/3 or 1/2 off the table when you are making $1000. Ride the other positions higher because the stock may continue to go up.

Adding Daily Chart Analysis To Your Setup

Sometimes it is beneficial to look at the daily chart of your setup as well. The chart above is the daily chart of AAPL during the time of the setup in the weekly chart that I showed you above. You want to have as many technical convergences on your stock. That is why confirmation of a reversal back up in the daily chart can be very beneficial.

In the chart of AAPL above the stock was also finding support at the daily 50 day moving average. At the same time, the stock was breaking above a daily downtrend line. You can see how this helps the stock to move up. Not only was there a setup in the weekly chart, the daily chart also has technical signals telling us that it was about to go up.

The lesson here is if you do your homework, read through this entire website, you will very likely be more able to spot these kind of setups.

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