Study Guide for Come Into My Trading Room - Forex Factory

190 CASE STUDIES
Trade 7: International Business Machines IBM—Exit Answer
Chart A7-c
entry
long
AB C D E F G
IBM is a typical blue chip, moving slowly and steadily, with none of the
wild gyrations seen in so many “cats and dogs.” The slope of the slow
22-day EMA tracks the trend, while the faster 13-day EMA identifies value
levels for entries.
At point A, IBM rises near its upper channel line, offering the first of
many selling opportunities. Two days later it backs down, touching the
fast EMA. This pullback to value provides an excellent opportunity to
hop aboard if you missed the first buy signal. Professional traders who
have plenty of experience carrying large positions often use such pullbacks
for pyramiding. They keep adding to their original positions,
building them to a larger size, until they get an extra-strong exit signal,
at which point they sell the whole lot.
The rally in area C provides another opportunity to take profits, as
prices touch their upper channel line, an overvalued area. That rally is
followed by a decline back to the EMA in area D, offering yet another
opportunity to go long. This is the beauty of trading swings in blue
chips. All you need to do is find a few stocks that exhibit regular swings,
fine-tune your EMAs and channels, and start buying value and selling
overvalued levels or shorting value and covering undervalued levels.