So you are ready to buy Apple (AAPL) stocks or any other leader you’ve been looking for for months. Should you go for it? Better wait until it reaches a good buying point.
It’s tempting to jump in blindly after hearing or reading a promising stock. And there is always a chance that you will make money with it. But IBD readers know it pays to get in at the right time.
That’s where the point of sale comes in. Finding the right stock is of course an important first step. But buying the right stock at the right time is just as important. Learning how to read a stock chart can help you determine the right time.
Investor’s Corner regularly covers topics, including basic patterns. Most stocks spend weeks, if not months, consolidating into bases. As a stock completes a base, it will set an optimal buy point – the price at which it lifts resistance and the stock can quickly rise.
Don’t forget the volume
When leading stocks move past the buy point, volume is usually at least 40% higher than normal. This indicates that large investors are also buying. Common basic patterns are the cup with handle, cup without handle and the flat base.
For these and other bases, the buy point is 10 cents above the main resistance level on the pattern. For a cupbase, this is the stock’s previous high when the correction begins. For a cup with a handle, this is the highest price in the handle area. For a double bottom, this is the center peak of the W-shaped formation. For a flat base, this is the highest level in the entire base.
Apple takes two bites
Let’s take a look at Apple’s stock. In the summer of 2019, the stock was still recovering from a sharp decline. An outbreak of a cup with handle on July 31 failed. Apple immediately started working on a new base.
A 13% drop from the July 31 peak made this a flat base (1) and gave the pattern a buy point of 221.47 (2). That’s 10 cents above the July 31 high. Volume was a healthy 68% above average. Apple shares dipped below the buy point for a while, but never enough to trigger a sell signal (3).
The stock rose nearly 50% over the next four months, before pausing to build a new base. Apple, and IBD standings stock is trading near all-time highs today.
What if a stock rises above the buy point? In such an escape gap from a base, you can use the high of the first five minutes of the trade as an alternative buying point.
This article was originally published on December 24, 2020 and has been updated. Follow Nancy Gondo on Twitter at @IBD_NGondo
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