How I Learned to Stop Worrying and Love Pullbacks

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We’ve all heard it a million times: “Wait for the pullback.” But it’s often easier said than done because of emotion.

Greed dominates on the way up, with nobody wanting to wait for lower prices. Fear takes over when the market declines, and then everyone’s too scared to buy.

That’s why I love moving averages as a trend indicator, especially the 50-day moving average. (This is simply the mean of the last 50 closing prices.) Technical patterns on many charts look good over the long run as stocks repeatedly bounce along that line. Some academic studies even suggest that a higher percentage of companies hold their 50-day moving averages and rebound rather than breaking down to new lows.

Unfortunately, it’s not always easy to find these opportunities when they arise. The good news is TradeStation makes this kind of automated analysis and pattern recognition incredibly easy. Our platform includes hundreds of pre-built indicators, which you can customize further in a matter of minutes.

Given the market’s broad pullback the last two sessions, our Client Training and Education team whipped up a scanner to find companies in the S&P 500 that tested their 50-day moving averages. Below are some names from Monday, but remember they change constantly. If you want the tool to detect these stocks every day, please email my associate David Russell at DRussell@tradestation.com.

(By the way, if you want to learn how to automate and test trading strategies based on chart indicators, please consider attending our TradeStation Master Class down in sunny Florida next month.)

Select S&P 500 members pulling back to 50-day moving average on Monday, February 5:

  • Advanced Micro Devices (AMD): The chipmaker rallied early this year on Intel’s (INTC) security flaws and reported better-than-expected earnings last week. It’s up 13 percent since the start of January.
  • Nvidia (NVDA): Another chipmaker that’s one of the index’s top performers over the last 12 months. It’s still sitting on a 10 percent gain in 2018.
  • Facebook (FB): It’s only been four days since the social-media giant hit a new all-time high.
  • Bank of America (BAC): The financial heavyweight slid 6.1 percent yesterday, its biggest drop in a year and a half.
  • Wal-Mart Stores (WMT): A new focus on e-commerce has driven the retail giant higher, but Monday’s selloff let buyers in below the 50-day moving average for the first time since October.
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Dr. Don Pratl is Director of Trader Development and Education for TradeStation. He joined TradeStation in 2016 after holding similar roles with other online brokerages. Don’s long career in the financial services industry reflects expertise in administering trading and investment strategy programs for retail investors as well as financial services professionals. Since the 1980s, he has held various positions in areas including CBOE trading floor order execution, marketing, sales, personnel management, training and customer service. Don holds series 3, 4, 7 and 63 FINRA licenses, earned his Ph.D. in Organization and Management, and his M.A. and B.A. in Political Science. He has been an occasional adjunct college instructor since 2004 at a range of institutions, teaching undergraduate, graduate and doctoral students using in-class and online formats.