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Chart of the Day / How to Know When to Exit a Trade with Obscene Accuracy

How to Know When to Exit a Trade with Obscene Accuracy

June 5, 2018

The idea that drawing lines on a chart can lead to incredible profits has been a matter of contention for years…

Warren Buffett can’t stand it, for example.

In fact, the billionaire once noted, “I realized technical analysis didn’t work when I turned the charts upside down and didn’t get a different answer.”

Peter Lynch observed, “Charts are great for predicting the past.”

Forbes once noted that, “Technical analysis is fundamentally flawed.”

But the fact remains that technical analysis works well.

As technicians have learned from Jesse Livermore, for example, “The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements.”

Let’s revisit Amgen for example.

In early May 2018, we highlighted the stock at an oversold extreme. Not only was the stock trading at its lower Bollinger Band (2,20), RSI was oversold at its 30-line. MACD dipped too much too soon. Williams’ %R was below its 80-line.

Not only after, the stock jumped $20 from $165 to $185.

We’ve seen the same pattern repeat itself time and time again over the last two years with similar results each time.

But we’ve also watched as plenty of traders lose money because they’re not sure when to sell in time and secure the win, too. Take a look at what happens each time the AMGN stock challenges its upper Bollinger Band (2,20) with RSI at its 70-line where it is right now.

Williams’ %R is now above its 20-line. Even MACD has pushed too high.

Typically when this happens, the AMGN stock has a historical tendency to pull back.

It’s just something to keep in mind when you’re looking for opportunity.