Friday, November 11, 2011 10:16:40 AM
Mead Johnson - bouncing off support -
>>> There’s a major difference between a trending channel like the one in Mead Johnson Nutrition (MJN) and the horizontal range in a stock like Broadcom: Mead Johnson's trend provides a much greater bias for shares’ likely movements. For that reason, trending channels such as MJN's don’t require waiting for a breakout, and they’re often more actionable.
In the case of an uptrending channel like the one in MJN, traders should be looking for a bounce off of support as a buying signal. That bounce is crucial -- support and resistance levels do invariably fail (causing breakouts), so we want to see that demand is holding up below that trend line before actually putting money on the line. While it may cost a few basis points in lost gains to wait for that confirmation, it dramatically increases the probability that the trade will be successful. In the long-run, that’s crucial.
>>5 Rocket Stocks to Buy in November
One notable thing about Mead Johnson is the fact that the stock actually has resistance defined as a range rather than the single, well-defined trend line that makes up support below. In uptrending channels, resistance tells traders the probable extent of a move -- in this case, I’d recommend scaling down your position to reduce risk as MJN approaches the first line, then trade the range just like another smaller channel.
A bounce off of that closer resistance is a signal to close the trade. <<<
>>> There’s a major difference between a trending channel like the one in Mead Johnson Nutrition (MJN) and the horizontal range in a stock like Broadcom: Mead Johnson's trend provides a much greater bias for shares’ likely movements. For that reason, trending channels such as MJN's don’t require waiting for a breakout, and they’re often more actionable.
In the case of an uptrending channel like the one in MJN, traders should be looking for a bounce off of support as a buying signal. That bounce is crucial -- support and resistance levels do invariably fail (causing breakouts), so we want to see that demand is holding up below that trend line before actually putting money on the line. While it may cost a few basis points in lost gains to wait for that confirmation, it dramatically increases the probability that the trade will be successful. In the long-run, that’s crucial.
>>5 Rocket Stocks to Buy in November
One notable thing about Mead Johnson is the fact that the stock actually has resistance defined as a range rather than the single, well-defined trend line that makes up support below. In uptrending channels, resistance tells traders the probable extent of a move -- in this case, I’d recommend scaling down your position to reduce risk as MJN approaches the first line, then trade the range just like another smaller channel.
A bounce off of that closer resistance is a signal to close the trade. <<<
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