We looked at the power of the breakout last week, and the 52-week high screen. By using this screen we can find stocks that are trading close to their 52-week highs and can alert us to stocks that are also close to breaking out. 

We can also use this screen to find stocks that we can buy on a pullback too. In bullish markets, breakouts are excellent, but buying the dip is a tried and tested strategy that traders can employ. 

This works because we are getting onboard a trend that is on a slight pullback. We can tighten up on our risk because we are entering at a point where there is clear support and demand. 

Remember, charts work because everyone looks at the same points on a chart and sees support and resistance. “It’s like one big groupthink”, I hear one critic at the back say. Well, yes. Yes, it is. But if you can use it to gain an edge – why would you not use it? 

Here’s an example of Games Workshop – a stock I’m sure you will be familiar with.

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In November 2019, we saw a breakout and the stock tested the 20 EMA (orange line) in December. Then in 2020, we saw the stock test it twice again, before its collapsed in late February. The stock has since recovered, and in April 2020 we saw the stock bounce off the 20 EMA again, and in May, June, and July. Anyone who had picked up on this point as a potential entry into an uptrending stock or an investor who wanted to use technical analysis to add to their position at an optimum point would so far be quite pleased. 

That’s not to say support always works – it doesn’t. But by looking for pullbacks we can get onboard a quality stock or more importantly an uptrending stock, and scale down our risk because we are entering at a point of high probability.

One of the great features of IG Index’s Direct Market Access is that for SETS traded stocks we can input our orders onto the Level 2 orderbook. We can set our orders in advance and put these into the market. By doing this in advance in removes any emotional overrides – we pick a level we want to…

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