What if you could refine your strategy to outperform 99% of the market?
Buying a stock that’s bouncing up from the EMA 21 is a smart move. The idea is simple: buy high and sell higher. Let’s dive into how this strategy works using a real-world example.
The Perfect Entry Point
On May 7, 2024, I bought Modine Manufacturing Company (MOD) at $105.72. The stock had been in a strong uptrend since November 2023. It gave back some gains, creating a perfect buying opportunity.
And guess what? I set the stop-loss at $98.97, just below the psychological $100 level. This meant my position risk was 6.32%.
Setting the Profit Target
I aimed for a profit target of $126.86. This translates to a 20% gain, giving me a favorable 1 to 3 risk/reward ratio. That’s how you set yourself up for success.
But was this an ideal buy? No, because the volume wasn’t high enough. The best buying point would have been on November 14, 2023, when the stock broke out of a solid low volatility base.
Evaluating the Stock
MOD was outperforming 99% of the market, making it a market leader. However, the industry rank was 40 out of 197. This shows MOD is somewhat of a loner in its industry.
The stock was under institutional accumulation, with an uptrend in institutional ownership. The volume up/down ratio was 1.1, indicating that buying volume was lifting the price more than selling volume was lowering it.
Details at a Glance
Explanations for the Drawing
The upward purple arrow shows where I bought the stock. The downward purple arrow shows where I sold it.
Green Line 21-day exponential moving average line (see EMA 21 below)
Red Line 50-day simple moving average line (see SMA 50 below)
Black Line 200-day simple moving average line (see SMA 200 below)
- Date: May 7, 2024
- Stock: Modine Manufacturing Company (MOD)
- Price: $105.72
- Stop Loss: $98.97
- Profit Target: $126.86
- Market Outlook: Confirmed uptrend
- RS Rating: 99
- Industry Rank: 40/197
- Volume U/D Ratio: 1.1
- Institutional Trend: Up
- Position Risk: 6.32%
- Risk/Reward Ratio: 1:3
Terms and Definitions
Ever felt like trading lingo was designed just to keep amateurs out of the loop? Let’s simplify a couple of terms:
- EMA 21: Exponential Moving Average over 21 days.
- Stop-Loss: A predefined price level at which a trader exits a losing trade to prevent further losses.
- Profit Target: The price level at which a trader aims to sell a stock to realize a gain.
- RS Rating: Relative Strength Rating, showing a stock’s price performance compared to the overall market.
- Industry Rank: A ranking of the stock’s industry group.
- Volume U/D Ratio: The ratio of up-volume to down-volume.
Conclusion
Trading stocks by buying high and selling higher can be highly rewarding if done right. Remember to set your stop-loss and profit targets carefully. Keep an eye on market trends and institutional activity.
So, why did I buy MOD at that point? It was breaking out of a base and outperforming the market. And always aim to refine your strategy for even better results.
Go out there and make smart trades. The market rewards the prepared.
By the way, if you have any questions, comments, or ideas, contact me here and I’ll get back to you.
