Spot Lower Entry Points With A Simple Trend Line

Investor's Business Daily

Investors should always strive to buy leading stocks at proper buy points when the market is rising.

The proper is when a stock takes out the left-side high or when it clears a by at least 10 cents. But for more aggressive traders, sometimes it's prudent to use a lower entry.

One of the easiest ways to find a lower entry point is to simply draw a trend line across the highs of a base or in a handle. The idea is to buy once the stock breaks above the trend line, which represents an area of .

Sometimes, using this method can get you in several points lower than the traditional left-side high buy point. It can even get you in lower than that of a handle's buy point. In this case, the difference can be small.

It takes time to stalk and draw a proper trend line. But another benefit of buying stocks using the trend line is that it may prevent you from being stopped out if a occurs once the stock takes out the traditional entry.

Remember, this method is more art than science. Unlike standard buy points, where you add 10 cents to a high, the precise buy point using trend lines can be hard to pinpoint.

Another thing: Just because a stock breaks above a trend line does not mean that everything is good from here. You can still be prone to whipsaw action.

You should generally draw trend lines on a daily chart. The downward trend line should connect at least three highs. The more points connected, the better.

If the base spans many months, then investors can plot trend lines on weekly charts.

Thanks to the robust demand of corn-based ethanol, fertilizer maker Mosaic (MOS) went on a tear around August of 2006.

In December 2006, the stock started forming what would become a nine-week consolidation. 1 The pattern was too deep for a and wasn't exactly a either.

The standard buy point was 23.64. 2 Investors could have drawn a trend line from the Dec. 11 peak for an aggressive entry.

Mosaic broke above the trend line Feb. 12, 2007, clearing a buy point of about 22.08 3 in nearly triple average . The stock rose 89% by July, then went into a highly choppy correction for two months before heading to .

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