People constantly wonder how spot a healthy movement in a stock...
So what is the point of knowing if a stock’s price action or movement is healthy? If you understand a healthy move you will be able to stay in the trend longer and make more money. This will give you a better insight to when a stock is ready for a pull back.
For example, a stock moving exceptionally fast is more likely to have a pullback than a healthy stock that moves up with the trend slow and steady…
Spotting a Healthy Move: You Just Know
Spotting a healthy movement in a stock is similar to spotting a healthy person on the street… you can just tell they are healthy or unhealthy by just looking at them!
(I’m sure in the photo above photo you can tell which person looks healthier... right?)
As you get better at knowing and getting a feel for a stock’s price movement, you will just be able to tell if a stock is healthy.
The Simple Way to Predict a Healthy Movement
One of the best ways to see if a stock is having a healthy run is to just draw an imaginary line at around the 40 degree angle. (This will give you a better understanding in how the price is moving compared to this level).
If the stock’s price action is above the 40 degree line (meaning it is moving up like a rocket ship) then it is probably an accelerated move and UNHEALTHY! (This means it will most likely pull back soon).
If on the other hand a stock is moving slow and steady (about the 30 degree angle) then that stocks price action is healthier. This means the run can continue longer as it is more stable.
To understand what a healthy movement in a stock is, try to dray an imaginary line, right around the 40 degrees level and try to understand how the chart is moving along that line.
Remember that some stocks explode and can continue to move on an accelerated move for quite some time. These are unhealthy movements – but just because they are unhealthy does not mean you cannot trade them!
When drawing your imaginary lines you always want to stick to drawing the lines on a daily time frame. If you draw it on a weekly time frame this is okay as well, however try to avoid the intraday movements as they are far less predictable and can whipsaw you around.
This insight goes a long way to finding healthy movements in stocks. It is healthier if a stock has pull backs or consolidation patterns.
And if you know which stock chart looks and appears healthy then it will give you an idea of which stock you can stay in longer and in the end… make more money.