It's always nice to be ahead of the game. With investing, you can sometimes buy stocks at lower prices using alternative — or early — buy points.
Alternative buy points can get you shares of a stock ahead of a traditional entry point, such as 10 cents above the left-side high of a cup-without-handle base.
Sometimes the alternative entry can get you in several points below the standard . If the works, it can be a beautiful thing.
There will be more work involved. You'll have to dig deeper into the charts to find them and monitor for adjustments. Be sure you are focusing on stocks with very strong fundamentals and show heavy institutional . Finally, make sure you have frequently practiced finding and studying excellent chart patterns before engaging in this advanced trading technique.
For example, one simple method involves drawing a downward-sloping trend line across the highs of a stock during its pullback within a base. The idea is to buy once the stock clears the line in heavy trade. In case of a volatile stock, you might need to redraw the line a few times.
When using a standard buy point, stocks will sometimes break out, then vacillate or shake you out before moving higher. Getting in earlier may prevent you from being stopped out if a occurs once the stock passes the traditional buy point.
If you get in at a lower buy point, you can use the standard buy point to add shares.
But note that spotting the alternative buy point is often more of an art than science. Even alternative entries can be prone to whipsaw action. And just because a stock breaks above a downward trend line in heavy trade, it's not necessarily all good from here.
IBD recently released its new Advanced Buying Strategies home study course, which covers alternative buy points in depth. Some of the buy entries covered are three weeks tight, IPO bases, breakaway gaps and a strong rebound after a shakeout. Follow-on buy points such as pullbacks to the 10-week moving average and short-stroke patterns are also covered in the course.
In early 1999, wireless chip firm Qualcomm (QCOM) shaped a with a standard 60.10 buy point. A downward trend line starting from the Nov. 3, 1998, high of 60 (1) yielded a lower entry point near 53. The stock jumped fivefold by July.