Buy on pullback stocks

Buy on pullback stocks

By: Gashek On: 18.07.2017

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This is a good but tough question to answer. There is no substitute for the frequent study of charts, but let's work through scenarios to better understand your options.

3 Great Stocks to Buy in a Market Pullback -- The Motley Fool

Suppose a stock breaks out of a good base, runs up some, then pulls back. If the pullback is not on high volume, and the drop is not sharp relative to the run-up, then you could add to your position, provided the overall market still looks healthy. How do you determine the market's health?

If the pullback is on high volume, and the price drop is sharp relative to the prior run-up, you should wait and see what the stock does over the next few days. If the stock sold off due to a momentary weakness in the market, and it looks as if the market will recover from this setback, then you could add to your position when you see this in the chart. If, on the other hand, the stock sold off sharply on big volume when the market was strong, then you should question why the stock behaved this way.

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Perhaps the stock had run up so much that a sharp, but normal, pullback was necessary before moving higher. Perhaps there was an analyst downgrade on the stock due to valuation concerns.

Since valuations tend to reach well beyond people's expectations during bull markets, and if the stock's industry group and overall market are still strong, you could add to your position here. Perhaps there was news on the company or perhaps the news was just a rumor.

In each case above, you should see how much selling pressure resulted from such events, and determine whether it would be safe to increase your position. Under no circumstance should you be adding to your position if the stock is weakening. Please be sure to visit the following educational feature of Investors.

buy on pullback stocks

Scripting must be enabled to use this site. Search IBD's Knowledgebase E-mail Us Here. How can I tell the difference between a pullback and a breakdown of a stock?

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