How to Trade Pullbacks in Momentum Stocks | Bulls on Wall Street

How to Trade Pullbacks in Momentum Stocks

We recently showed you how to trade a parabolic short setup. That’s a powerful trade that provides nice gains to the experienced. But shorting that initial drop isn’t the only way to capitalize on a parabolic stock – you can also watch for a pullback opportunity. Let’s dig in!

Just to refresh your memory, a stock is considered “parabolic” when it has made a huge run up in a very short period of time. That’s what $SPU did recently, breaking over $4 and running to $18 in a couple short weeks.

spu3

Those kinds of runs aren’t sustainable; at some point, it will likely retrace some of that move (setting up the parabolic short trade opportunity). But very rarely do stocks immediately retrace all of that move – they usually bounce several times along the way, providing long opportunities. We usually wait until the third down day. In the case of $SPU, it dropped hard on Tuesday, continued to fall Wednesday, and then on Thursday it gapped up.

spu2

Once we see initial strength, we start looking for a sign that it will be sustained. $SPU started flagging intraday, and also held above its moving averages. The flag broke around $10.2, with large green candles confirming the move. It then ran all the way to $12.7, riding the 9 EMA along the way. For exits, you’d want to sell into the spikes, and keep a partial position with a stop at the buy price. This is not one you usually want to hold overnight, though.