# Trading on corrections during a trend



## pavilion103 (11 October 2011)

Having looked for only breakout opportunities when I first became interested in trading, it was quite a change of perspective to wait for corrections during a trend and look to enter on those. 

I am talking about the corrections that occur as a stock is in an established trend. 

It appears that the obvious advange is a low risk entry (and greater potential for higher R:R). 

I'd like to open up a discussion on what constitutes a good entry opportunity on a correction. 
Personally, I am either looking for excess volume on the correction i.e. minor selling/buying climax and also divergence on the MACD histogram. 

I've attached an old chart to illustrate exactly what I am referring to. The orange circles represent such opportunities (be they good or bad ones).


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## Billyb (12 October 2011)

Trend Channels.


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## pavilion103 (13 October 2011)

Billyb said:


> Trend Channels.




Correct. 

What constitutes a good entry? What are some of the specifics you look for?


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## Wysiwyg (8 October 2014)

This present market on two stocks I am applying the - buy uptrending stocks in a correction strategy.
Post GFC trend is up. Significant historical resistance turns to support.

1) CWN had significant historical resistance at $13.75 which may become support. Price today $13.55. Bought a tad early at $13.87

2) UXC had significant historical resistance at 70c. Non Index correlated during this market correction so okayed for jumping on late at 90.5c 

Stop losses ready if 1) doesn't become support and 2) fails to break higher.


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## John Swift (9 October 2014)

Wysiwyg said:


> This present market on two stocks I am applying the - buy uptrending stocks in a correction strategy.
> Post GFC trend is up. Significant historical resistance turns to support.
> 
> 1) CWN had significant historical resistance at $13.75 which may become support. Price today $13.55. Bought a tad early at $13.87
> ...




Interesting. Curious about a couple of things if you could help clarify...

1) You bought above the historical resistance/support level, now it has broken through the support level... how do you place a stop loss if the level "doesn't become support"? Presumably the price has to go back up and then prove that $13.75 is support. At what level is the stop loss?

2) If the level of historical resistance (now support) is at 70c, then presumably your stop loss here is just below 70c? Only about 25% lower than the current price. What constitutes failing to break higher? It could linger between 70c and 95c for months...


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## Wysiwyg (9 October 2014)

John Swift said:


> Interesting. Curious about a couple of things if you could help clarify...
> 
> 1) You bought above the historical resistance/support level, now it has broken through the support level... how do you place a stop loss if the level "doesn't become support"? Presumably the price has to go back up and then prove that $13.75 is support. At what level is the stop loss?
> 
> 2) If the level of historical resistance (now support) is at 70c, then presumably your stop loss here is just below 70c? Only about 25% lower than the current price. What constitutes failing to break higher? It could linger between 70c and 95c for months...




1) My stop loss is $500 on stock long positions but I can close before if there is resistance to share price rising. I keep an eye on them.
2) No $500 but if that trend line breaks I am gone. Failing to break higher is overwhelming 93c which then becomes support. I notice today the price has dipped on low volume so not fazed as yet.


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## >Apocalypto< (9 October 2014)

Al Brooks goes very deep into continuations and trend channels. 

Personally, I find it's hard. Chart in hindsight always looks perfect... ent here ect but when you're live they get hard due to not knowing how long this trend is going to go for. if we could all know that no one would work.


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## Wysiwyg (9 October 2014)

>Apocalypto< said:


> Personally, I find it's hard. Chart in hindsight always looks perfect... ent here ect but when you're live they get hard due to not knowing how long this trend is going to go for. if we could all know that no one would work.



I know exactly what you mean. By the time it is seen it is over or near over. Go long and that is the end of the bullishness, go short and that is the continuation of the bullishness. Reverse the psychology and do opposite and the outcome is different again. Entry works on test but differs with cash invested. 

I wonder if I'm trading a different market to the rest of the world

I think the broker has a separate market for me. Just me and them. No wonder I'm struggling.


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## John Swift (10 October 2014)

Wysiwyg said:


> 1) My stop loss is $500 on stock long positions but I can close before if there is resistance to share price rising. I keep an eye on them.
> 2) No $500 but if that trend line breaks I am gone. Failing to break higher is overwhelming 93c which then becomes support. I notice today the price has dipped on low volume so not fazed as yet.




I presume that you sized your position based on some technical price level on each of these trades. I am curious as to what that price level is and how that is derived.

That is, what price level would you say would constitute CWN not making $13.75 support (especially since it was already trading below this level) and what price level would you say constitutes UXC not breaking over 93c (as the support level at 70c is quite a fair distance away)?

I would think that somewhere in your trading plan you would say something like: if CWN trades below $13.20 then it has failed to make $13.75 support and so we should exit the trade. And something similar to that for UXC. Otherwise, how do you do your position sizing with a nominal cash stop loss of $500...?

Hope I'm making sense. Just trying to understand your trading philosophy. Thanks for sharing.


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## Wysiwyg (10 October 2014)

John Swift said:


> I presume that you sized your position based on some technical price level on each of these trades. I am curious as to what that price level is and how that is derived.
> 
> *Buy price = $0.905
> Stop loss below my trend line = $0.85
> ...




Real good to chat to the world about it. Disappointed by my timing though. What a day.


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## AverageJoe (18 October 2014)

Wysiwyg said:


> This present market on two stocks I am applying the - buy uptrending stocks in a correction strategy.
> Post GFC trend is up. Significant historical resistance turns to support.
> 
> 1) CWN had significant historical resistance at $13.75 which may become support. Price today $13.55. Bought a tad early at $13.87
> ...





I got 13.81 as support and have been monitoring the weekly candle to see a reversal pattern. None so far and there is rejection of this level once the weekly closed below. Now looking at the next level 11.59. I was not expecting much from this current level being a bearish momentum with a double top formed beginning 2014 and a lower high August 2014.


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## John Swift (18 October 2014)

Wysiwyg said:


> Real good to chat to the world about it. Disappointed by my timing though. What a day.




Thanks for sharing Wysiwyg. Sorry you got stopped out. Any learning points for the future from the now closed out trade?


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## Wysiwyg (18 October 2014)

Nothing learned really. Sometimes it's right , sometimes it's wrong. Let's make the right ones count.


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## Wysiwyg (18 October 2014)

AverageJoe said:


> I got 13.81 as support and have been monitoring the weekly candle to see a reversal pattern. None so far and there is rejection of this level once the weekly closed below. Now looking at the next level 11.59. I was not expecting much from this current level being a bearish momentum with a double top formed beginning 2014 and a lower high August 2014.



Okay Joe. My view is that the narrow down trend channel from August has broken up. I remain quietly confident the trend has turned up. If not well the usual loss will be incurred.


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## AverageJoe (19 October 2014)

Wysiwyg said:


> Okay Joe. My view is that the narrow down trend channel from August has broken up. I remain quietly confident the trend has turned up. If not well the usual loss will be incurred.







This is what I see on weekly. Support broken but there is a block of overhead traffic that will likely take time to penetrate. I was expecting a reversal candle at the support but none for me so far


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## Wysiwyg (19 October 2014)

AverageJoe said:


> This is what I see on weekly. Support broken but there is a block of overhead traffic that will likely take time to penetrate. I was expecting a reversal candle at the support but none for me so far



Prior to last week there were seven down weeks with the eighth just gone closing higher. I too think there is more downside though. 

I'm sure J.P. will have plenty of investors who share his vision of Crown servicing the top end of town clientele.


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## AverageJoe (19 October 2014)

Wysiwyg said:


> Prior to last week there were seven down weeks with the eighth just gone closing higher. I too think there is more downside though.
> 
> I'm sure J.P. will have plenty of investors who share his vision of Crown servicing the top end of town clientele.




Agree, a lot of bearish momentum at the moment so no fighting that bearish move unless I see a reversal candle, none so far so I am expecting to start looking at a lower level. 

Here is Sydney Airport that is probably too late daily but has some potential weekly/ Daily pin rejection and took off!




Weekly




Daily


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