Pyramid in -when chasing

[f35c]

Mike,

When buying stocks, we usually pyramid in e.g.
50% at pivot
30% at 2.5%
20% at 4.5%

How do you approach this, if for some reason, you've already missed the pivot by say 3%? Do you immediately go into the stock with a 80% position at the current price: 3% above the pivot? Right now I limit myself to a 50% position at 3%, and only add 20% at 4.5%? That is, I can't get a full position on the stock, until later when I get a chance for add-on buys. Is this the way you look at it?

[Scott_]

Hi f35c,

Since no one else has answered, I'll take a shot at the question.

I don't see anything wrong with your approach, but here's how I do it:

I do not like to chase. If a stock gaps past my intended buy point, I'll buy only if it looks like a buyable gap-up as defined by Chris Kacher and Gil Morales:

http://www.traderplanet.com/articles/view/163614-take-the-fear-out-of-buying-big-gaps-aapl/
http://www.traderplanet.com/articles/view/164232-gain-your-stock-edge-buyable-gap-up-strategy/

For gaps that occur at the market open, it's hard to tell whether the day's volume will be high enough to qualify, but the pre-market volume may be a clue. And I have more confidence if news or earnings are driving the gap-up.

If I do buy the gap-up, I'll place an order for any buys I missed. If the stock gapped up 5% above the pivot, for example, I'll buy a full position in one go. That's pretty aggressive, but the stock is showing real power.

The worst case scenario is I get stopped out the same day at -7%.

I have a note in my buy rule set that WON once said a gap up past a pivot should be no more than 10% above the pivot to be buyable. I don't have any examples to prove or disprove that assertion, but it's something to consider.

HTH,
Scott

[Mike]

Sorry, I previously replied but must not have clicked on the submit reply button.
When I buy past the pivot point, I take an 80% position (buy-1 and buy-2) and try to add to it later.

I handle gap ups differently. I have no limit for how far above the pivot the stock gaps, for example, 20% is okay. I reference my exit price for the gap-up situation to the intraday low of the gap-up day. A close below the low is the exit condition. The preceding means that my risk is not related to where I purchase the stock relative to the original pivot price, but instead, to where I purchase the stock relative to the low price of the gap day. My last gap purchase was NVDA, this week. I did not buy the stock on the gap day, but instead I waited until the pullback low of the next day (11/14/16). Even that price stretched my limit for how far above the low would I enter a position. When I buy within 2% of the gap-up day low, I might allow a little wiggle room (1-2%) on selling below the low of the gap day. Delayed entries on gap purchases are typical for me. There is often a pullback in the next day or two after the gap. Another factor on delayed entries is that I know the low price of the gap day, I can compute my risk. I can't know on the gap day if the low price is established; however, I will buy on a gap-up day if everything else looks good.

[f35c]

Thanks.

Gaps I trade in a similar way Mike. I find that waiting for the first pullback after a gap usually provides the best entry too, but I typically don't go in on red days. It's an interesting idea to use these days to get in towards the gap up day's lows.

NVDA is doing very well, enjoy the ride.

[Mike]

Thanks.

Gaps I trade in a similar way Mike. I find that waiting for the first pullback after a gap usually provides the best entry too, but I typically don't go in on red days. It's an interesting idea to use these days to get in towards the gap up day's lows.

NVDA is doing very well, enjoy the ride.

Charles Harris and Mike Webster are Bill O'Neil portfolio managers. If you ever get the chance to go to Chart School, it is worthwhile, they are the instructors. Charles buys pullbacks and Mike buys strength moves. It is interesting to see their different styles.