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Every trader runs into this sooner or later…
A stock you’re watching drops 5%. Maybe 10%. The question is simple: Are you looking at a normal pullback inside an uptrend, or is this thing starting to roll over?
I see traders get this wrong all the time. They’ll buy a dip because somebody on social media says it’s a bargain after a sell-off, then wonder why it keeps falling another 15%.
On the flip side, they’ll dump a perfectly good stock because one ugly day chased them out.
The chart usually tells you the answer if you know where to look.
A pullback is exactly what it sounds like — a stock takes a breather. Maybe it retraces to a Fibonacci level. Maybe it shakes out some weak hands. But the overall trend stays intact. Buyers show up where they’re supposed to show up.
Corrections
A correction is different. Corrections break things.
They break support. They make lower lows. They change the character of the chart. What looked like an uptrend suddenly starts looking like something you’d rather not own.
Let’s break down an example…
Say two stocks pulled back to roughly the same 61.8% Fibonacci level. One bounced and kept moving higher. The other kept sinking.
What was the difference?
The first stock held above its previous swing low.
The second stock didn’t.
That’s the whole ballgame.
Before you buy any dip, ask yourself one simple question: Did the stock hold the previous low, or did it break it?
If it held at support, you’ve probably got a pullback and a trend that’s still doing what trends are supposed to do.
If it broke down, slow down.
That doesn’t automatically mean the stock is doomed. It just means the chart has some work to do before it earns your money again.
Too many traders treat every red candle like it’s a buying opportunity. Sometimes it is. Sometimes it’s the market putting up a giant warning sign.
The good news is you don’t need a dozen indicators to figure it out.
Just look at the previous low and the lows before that.
If it holds, buyers are still in control.
If it breaks support, let somebody else catch the falling knife.
Jeffry Turnmire
Jeffry Turnmire Trading
I host my Morning Monster livestream at 9:15 a.m. ET each weekday on YouTube, and then 30 Minutes of Awesome at 5 p.m. ET each Tuesday!
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Important Note: No one from the ProsperityPub team or Jeffry Turnmire Trading will ever message you directly on Telegram.
I’m just a regular dude in Knoxville, Tennessee: a husband, father, civil engineer, urban farmer, maker and trader.
I’ve been at this trading thing with real money for 20-plus years, and started paper trading over 35 years ago. I have a knack for making some epic predictions that just may very well come true. Why share them? Because I like helping other people — it’s the Eagle Scout in me.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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