This is a quick description as how I use STOCH and the RSI2 to help me find key pullbacks in a trending market.

Throughout trending markets we expect to see healthy pull backs. This happens as people rotate out of certain stocks/sectors, price drops and this gives us a great opportunity to enter the stock at a discounted price.

If we take $MSFT as an example we can see price hit a high of $97 on 2nd March – RSI was above 97 and Stoch was reaching 90. I wouldn’t always take this as a signal to sell. In a strong bull market these readings will be common.

Several days later we see price fall to $87, just over a 10% discount. It’s a fire sale and we need to get in on this bargain! The RSI was below 2 and Stoch below 10. Now we wouldn’t jump straight in. We would check the news and financials to establish any reason for the drop. If there is nothing obvious we need to look to get in and buy this discounted giant.

If you had bought in at $87 your stocks would be worth over $108 now! Not bad is it?

Hindsight is a wonderful thing but give it a go, back test the strategy and see if it works for you.

I’ll be adding more over the coming weeks so make sure you give me a follow 😀