Study Guide for Entries and Exits [PDF]

Summary
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Study Guide for Entries and Exits – Book

Moving averages represent a consensus of value, and well-established trends usually develop a certain rhythm. Prices keep pull- ing away from value in the direction of the trend, then snap back to the EMA, as if pulled by a rubber band.

The downtrend in 2002 was punctuated by two rallies back to value (B and C). The uptrend in 2004 and 2005 was punctuated by three pullbacks to value (G, H, and I). Such signals occur in all timeframes, on daily and intraday as well as on weekly charts.

One of the most bullish things a stock can do is break down to a new low, show no follow-through to the downside, then rally and close above the previous swing’s low. That’s exactly what this stock did in the spring of 2003, before embarking on a healthy move that saw it more than double before the sell signal came in.