Use Daily Charts for High Flyers

Charles Schaap

For longer term investors, it is generally best to use weekly charts when trying to build a winning portfolio of stocks. The 50/50 strategy is a great method for entering stocks that trigger a buy alert near the "weekly" 50 exponential moving average (50 EMA). Usually, if an investor misses the initial trend breakout, he/she can look for the next 50/50 signal at a subsequent pullback to the weekly 50 EMA. However, some strongly trending, "high flyer" stocks may not pullback to the weekly 50 EMA for a period of up to a year, or more.

In the chart of Polyone Corporation (POL), notice how the the stock broke out of a consolidation pattern in July of 2012, but it has not pulled back to its weekly 50 EMA in over a year. An investor waiting for a weekly 50/50 pullback would have missed a significant profit opportunity.

Instead of missing out on the trade, an investor can apply the 50/50 strategy to the daily chart instead. Watch for these pullbacks after a weekly breakout. On the daily chart of POL, there were two pullbacks to the daily 50 EMA which allowed potential entries. One pullback occurred in early September 2012 (1) and the other occurred in late October 2012 (2).

High flyers can provide some of the best profit opportunities. Even though investors generally want to look for longer-term entry signals on the weekly chart, the daily chart can provide a useful and profitable alternative in high flyer stocks.

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