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Most traders throw a stock in the trash the moment it pulls back. I get it — when something drops 5–10%, the instinct is to move on and forget about it.
But here’s what I’ve learned: Those pullbacks are often where the best setups hide.
I’ve been working with a team of developers to build a custom scanning system that does one thing really well: It finds stocks that have pulled back 5–10% in the past 30 days, then tells me when they’re ready to move again.
The idea isn’t complicated. I start with a simple Finviz scan that checks if a stock is above its 50- and 200-day moving averages. Nothing fancy. But then I layer in the pullback piece — and that’s where it gets interesting.
What I want after that pullback is pretty specific. I want the stock to move back above those key averages — even if it dipped below the 50-day for a moment — and then take out the previous week’s high.
That combination tells me the trend hasn’t broken. And when that happens, you not only have a stock that recovered its footing, but one that just posted a higher high on the week.
What I’m Looking For…
When a stock pulls back like that, most people assume the run is over. They move on. But I don’t want to buy the pullback itself — I want to wait for confirmation.
That confirmation comes when the stock pushes back above the moving averages and clears that prior weekly high. That’s the moment buyers show their hands again.
Once that happens, the stock usually moves up somewhere around 5–7% from there. On a cheaper stock, 5–7% is a long way. On an expensive stock, it’s nothing.
But the pattern holds either way.
The hard part isn’t the logic. It’s the discipline. It’s not letting yourself ignore a stock just because it pulled back. That’s why I’m having the system built — so I don’t miss the setup when it shows up.
The Stocks I’m Scanning
I gave my developers a specific list: the S&P 500 (SPY), the S&P 400 (MDY), the S&P 100 (OEX), the top 100 stocks in the Russell by market cap, and a bunch of ETFs. That gives me large, mid and small caps — basically the names that have enough liquidity and institutional interest to move when the setup triggers.
The indicator they’re building should be ready pretty soon, and once it is, I’ll be able to run this scan every week without missing anything.
The whole idea is simple. Don’t chase the run. Wait for the pullback. Then wait for the stock to prove it’s ready to go again. When it does, you’ve got a setup with a clear entry, a reasonable target, and a pattern that’s shown up over and over.
Geof Smith
Geof Smith Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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