My question is when a stock starts to pull back from the target point but almost at it within say 75 cents, when do you know that it time to take profit or to let it go for another leg up? Do you look at the volume and as long as its pulling put is below the average volume, or do you focus more on the MVA and if so what's the best MVA to watch. (March 10, 2003)
Targets are best estimates of how far a stock can run on a particular move. Thus a stock can get close to a target but not quite reach it. What we look at is how well it has worked on the price and volume action on the way up. A strong volume move up on strong volume that is early in a run (the first breakout, the first test of the breakout) makes us inclined to let it pullback some and try another run. If the pullback is on much lower volume that is what we want to see. We want to see it hold at the near support, and on these plays that is usually the 10 day or 18 day MVA.
We also look at the type of play. If we are looking to capitalize on a run up to a resistance level, we will be very inclined to take the gain if it hits near the resistance/target and starts to fade. On option plays we will also look at taking the gain on such a move up to the target that fades unless we have longer term options (still 2 full months minimum left) and the pattern is one that can continue to advance after a short pullback (e.g., breakout from a solid pattern). As always, the market makes some of the decision for us; in a weak market on an upside run we would be more inclined to take the gain. More inclined but not necessarily automatic. There are several stocks that continue to work to the upside well in this market.
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