What is a PBO? Is it a lead oxide? Is it a pension benefit obligation? Yes. In a trader’s world though, PBO stands for a pullback opportunity. A pullback opportunity is one of many patterns that a successful trader recognizes and executes.
What Is a PBO?
Basics of PBOs
Here at Hit & Run Candlesticks we like to keep things simple so what is a pullback? A pullback is a specific type of price movement that occurs when price, after rising to its peak, moves down. The upward trend is briefly reversed and there is a pause in its upward momentum.
Traders usually view pullbacks as an opportunity to buy. However, successful traders will analyze the situation closely before placing a trade. The reason is that there are two possible outcomes during a pullback:
(1) the stock is only pausing and will move up and continue its upward trend; (2) the stock is pausing before a move down.
These two possible paths are so different and can have a dramatic impact on profits. So it is important that traders study the situation carefully before placing a trade.
Successful traders always know when to enter a trade and when to exit a trade before placing that trade. Also, traders want to recognize a pullback and enter near the lowest price to maximize profits when the trade is working.
How to Recognize and Trade a PBO
- Look for a chart where price has been rising and then drops for two to five days. When using candlesticks, this may look like a series of green candles followed by a series of red ones.
- Then wait for evidence of price stalling or changing direction. One clue might be that today’s price does not move down below yesterday’s price. In candlesticks, this can be displayed as a doji (price opens and closes at or very near the same level) or other bullish candle where price closes higher than it opens and today’s close is higher than yesterday’s close. To keep it simple look for a green candle after the series of red ones.
- Enter the trade when price closes above the T-Line (the 8 exponential moving average). This assumes you are using a T-Line strategy.
- Exit the trade when price closes below the T-Line (the 8 exponential moving average) This assumes you are using a T-Line strategy.
(Please refer to the “What is the T-Line and T-Line Run Strategy?” article in this series for more information)
Other Considerations when Trading a PBO
When deciding on the best pullback opportunity, consider the following:
- Avoid stocks with low volume such as less than 250,000 shares traded in a 90 day period.
- Confirm that a stock is in a trend. One way to determine a trend is to focus on a moving average. The moving average will slope or point up in an uptrend and down in a downtrend. If it is flat, then there is no current trend and you need to wait for a resolution. So look for a sloping moving average.
- Allow your decision plan to buy the stock work. Always use a protective stop.
- The weakest pullbacks often have the strongest rebounds. A small or weak pullback usually means that there is a little profit taking before the uptrend resumes.
Examples of PBOs
To see what a PBO looks like, check out the following videos:
- Example #1: an example of an entry on a pullback opportunity
- Example #2: an example of a successful pullback opportunity
- Example #3: an example of a successful PBO entry featuring dojis
To Learn More about PBOs
Pullback opportunities (PBOs) are just one of the many successful trading strategies we use at Hit & Run Candlesticks. As with any new skill, practice makes perfect. In trading, the “right practice makes profit”. If you are interested in learning “hands on” how to master some simple but effective strategies, check out Hit & Run Candlesticks. To learn more about our services, receive private online coaching, sign up for membership and enter the live trading room, please click here.
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