One standard mistake aspiring traders tend to make is ignoring continuation trades – looking for trend-changing patterns only. The thinking goes: after a major move up (or down) a retrace must be looming because, ehm, well… it feels like it. While this can be a profitable strategy, it often leaves you burned. Instead, the best hit-rates, in my experience, are found when applying trend-following strategies. One good example, I hope, can be found in Sandvik today.
After breaking upwards in mid-2016, the stock has just about doubled in value and momentum continues to be strong – but not too strong (there is a difference!). After a negative overreaction on its quarterly report two weeks ago, Sandvik’s share price experienced some short-lived selling – but quickly managed to find support at the main trendline. A couple of days of almost no action culminated in a strong push upwards. In my opinion, this is enough to risk a bet on the bulls. Following the strong confirmation candle yesterday the picture looks even better.
On the negative side, however, OMX30 is trending just below a major resistance level. In addition, yesterday’s close ended up just underneath the marubozu level (or the middle 😉) of the negative reaction which followed on the report. These facts are worth keeping in mind, but the good stuff outnumber the bad.
Long-term view: Positive
Mid-term view: Positive
Short-term view: Neutral