Buy on Pullback
A lot of times traders will talk about buying stock on a pullback. What exactly does this mean? We will use an example of Caterpillar (symbol CAT) shown below:
We see that CAT is in a nice uptrend going back to last November. Buying back at the first of December would have been ideal; but as the stock continues its climb, when else would be times to buy? Buy on the pullbacks. A pullback could be thought of as a pullback to the moving average. We see a few times, where CAT pulls back to the 20 moving average (red line) and one time where it pulled back to the 50 moving average (blue line.)
Instead of panicking on a drop over a few days or a week, we look at these as opportunities to buy the stock at a cheaper price. If the stock is fundamentally sound and is in a strong trend, we want to buy on the pullback. We do not know how long the pullback will last. Instead of guessing, we can wait for an up day, as long as our trend is still intact.
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