Learning When To Pick Your Battles Starts With Winning Setups

Good news and bad news this week. Despite May putting in some solid days of trading, I unfortunately had my first daily loss for the month, and it was a fairly big one at over $6,000.

Still, May has been a good trading month in spite of some persistent chop. I’m up about $50,000 over the first half of May and, despite the mid-sized red day I saw on Tuesday, this is likely to be another green week if I can stay positive on Friday.

However, my winning trades for the week were still hard-fought. My biggest winning trades from Wednesday on PDS Biotechnology Corp PDSB came on a handful of pullback trades.

In fact, trading one-minute micro pullbacks for a break above the previous candle made up the bulk of my green trades for the week. However, that strategy also accounts for my biggest loss of the past five days.

Given that, I wanted to spend some time this week analyzing my timing on these pullback trades to illustrate how timing and the qualities of a stock play in the success and failure of a pullback strategy.

Let’s start with Tuesday’s big red trade in Novavax, Inc. NVAX. Immediately, I was skeptical of this name. It was a reverse split, but it had 400 million share float, which made its 30 percent move to $7.50 in the first half hour of the day a surprise.

Given the apparent momentum, I waited for the first pullback on rising volume and got in on the break above the $7.50 closing high. After breaking close to $7.60, the price dropped 50 cents on massive selling volume.

That red candle ended up being the highest volume of the day. Fort me, it represented a $5,000 loss and the end of my trading day. While the setup was good, the biggest red flag in that trade was the sheer amount of available shares. Still, this trade was more a case of poor timing, since the stock resumed higher 15 minutes later, hitting a day-high of $7.90.

A similar scenario played out Thursday in Eltek Ltd. ELTK, which I relented from trading on the open because of its price and the fact that there wasn’t a news catalyst. However, after it squeezed up 50 percent into a circuit-breaker halt, I kept an eye on it for a solid pullback at $2.70 and made a handful of scalp trades as it wavered under and around $3 for about $2,000 in profit.

Both of these trades had similar setups, and chance played a part in how the charts held up. However, even though neither stock had exactly the kind of characteristics I try to trade, the scarcity of available share in ELTK made it a much better candidate for a sustained pullback, scalp strategy.

By far the best pullback setup of the week was, of course, in my $6,800 winners in PDSB. Not only did it have all the characteristics I look for in a stock (shares below $10, under 10 million float, trading higher on news), but the chart developed a clear bullish ABCD pattern.

The trades I took on Tuesday and Thursday were evidence of how careful traders need to be in deciding when to take a position and how aggressive to be on a less than optimal setup. Occasionally, these might produce some stellar opportunities. At other times, they may result in some devastating losses. They can happen in equal measure, and it takes years to develop a sense of when to relent and when to step on the gas.

Ultimately, what helps develop that sense is recognizing patterns and qualities like those in PDSB. Knowing what works and why will help refine your sense of when a trade is worth fighting for and when it might be better to sit this one out.