On April 8, 2014, I noticed that Allergan, Inc. (AGN) showed up on my scanner as a stock that could be a potential reversal play to the upside.
How do I qualify an entry for a stock that is selling off and looking for a reversal? My answer is Demand and Support on the larger time frame. In this case AGN broke through a pivot of demand at 120.14 so I needed to step up and go to a higher time frame that it just broke to qualify the entry. I went to the weekly chart of AGN and I saw a pivot high of $115.90. I validated a potential entry reversal play at $115.90 and I dialed down to the small timeframe and pursued a small timeframe reversal near that area.
A key for my success in trading any setup is having a higher timeframe demand level to buy into. Once I set the area I was looking to buy into I needed price confirmation to show me that there were really buyers camped here. As the price fell into the key demand point of $115.90 I tuned into my 2 minute chart and began to watch for a trend change.
In my trading room, I called out to my room members to buy AGN long at $116.70 and place the stop under the low of the day looking for a target of 119.00. As the stock began to move in our favor we unloaded some of our position and trailed the remaining lots into our target of $119.00.
TRADING TIP
Remember to look for key areas to buy into for long reversal with small time frame trend changes as entries.
