Light Volume Pullbacks
This portfolio management tool helps identify great opportunities to invest in existing stock picks
What is a Light Volume Pullback?
The Light Volume Pullback (LVPB) tool identifies current GorillaPicks that have pulled back to a suitable price level in which to enter into a trade or to reinvest. Every stock is subject to a drop in price, but how do you know whether this is the start of a severe drop, or what might be just a dip along the way to future growth (and an ideal purchase point)?
When you develop physical symptoms like a sore throat and a stuffy nose, how do you determine whether it is just a common cold, the beginning stages of the flu, or something much worse, in which your health will most likely deteriorate significantly? If you’re like most people, your first course of action is to take your temperature. Everyone knows that a fever is usually the sign of a more severe illness (most likely an infection or a virus, rather than a cold).
Just as you might use a thermometer in this way to measure your overall health, there is a very effective way to determine the health of a stock whose strength appears to be deteriorating (experiencing a pullback). Is it a minor, temporary pullback that is actually an opportunity, or is it the beginning stages of a severe freefall? By examining a stock’s volume level during a pullback, you can usually determine whether the pullback is likely to be a serious one. You see, most pullbacks that signal the beginning of a very serious drop occur on very heavy volume. A more normal, orderly pullback typically occurs on lighter-than-normal volume. In any case, all wise investors know one thing: no stock rises forever!
This is where the Gorilla steps in! After all, the ultimate goal of Gorilla Trades is to provide its subscribers with the highest probability (of success) investment options in the Gorilla Trades portfolio, during any type of market environment.
Gorilla Trades provides its subscribers with a timing tool to assist in entry points for pre-existing portfolio GorillaPicks. You may have noticed that a certain term is commonly used in the nightly Trading Tips, which is a permanent feature of the Gorilla Trades service. It is one that leads subscribers into better entry points-the key to a profitable portfolio.
This term is Light Volume Pullback (LVPB). While the Confirmation Day concept has proven to reduce trade risk, some subscribers have questioned the sacrifice of performance. (The Gorilla firmly believes in giving up 2%-3% in profit in exchange for an increased probability of success in any trade.) Trade probability rules in the marketplace!
This section, which is included in each of the Gorilla’s evening emails, continually reviews the strongest, confirmed GorillaPicks within the current Gorilla Trades portfolio that are experiencing light volume pullbacks (LVPB). This exciting feature aids subscribers in determining whether a particular GorillaPick’s pullback is the signal of a possible opportunity to initiate, or add to, a current position.
At times (during steep market sell-offs and a very large portfolio) there will be an abnormally large number of Light Volume Pullback Buys (LVPBs). At other times (when the overall market becomes overextended), there may be no LVPBs. This section lists the symbol of each current, confirmed GorillaPick that is experiencing a light volume pullback, and includes a brief description of each possible trade scenario. Furthermore, a section on the web site (LVPB), in the Subscribers area, shows the charts of ALL LVPBs at any given time. Again, the Gorilla saves you the time of scanning chart, after chart, after chart.
The LVPB feature assists Gorilla Trades subscribers in making wise investment decisions; the one’s thought to have the greatest probability for success according to the Gorilla Trades System. A further understanding of the LVPB concept and how it coincides with the buy-low sell-high strategy may lead to better entry points and a potentially more profitable portfolio!
Dollar cost averaging up is often mentioned in the Trading Tips, included with every new potential GorillaPick presented. While this strategy is often used with longer term investments (buying on dips), how does it apply to GorillaPicks, which are meant to be shorter-term investments?
Over the years, investors have been taught to “buy on dips.” This strategy can be very dangerous, especially if your stock pulls back on heavier volume. Just ask the stockholder in any company that has gone bankrupt! The Gorilla poses this question: Why risk a bigger loss by adding to the position of a stock that could fall even further? Isn’t that similar to trying to catch a falling knife?
The Gorilla whole-heartedly believes that it is better to average UP, while a stock shows strength. However, there are also opportunities on pull backs (when they occur on lighter-than-average volume). The Gorilla identifies these potential opportunities on a daily basis. The Gorilla specializes in foresight, but studies hindsight. The “Confirmation Day” concept has resulted in more stable points of entry, but some profits have been unfortunately sacrificed. The Confirmation Day concept was developed to protect subscribers’ assets when the market environment becomes unstable or choppy. There have been many recent cases in which GorillaPicks have achieved their first target, approached their second target, and then achieved their raised second target. How high can each GorillaPick go?
Stocks can rise as high as buyers can take them, but subscribers always need to keep their risk in check. This is exactly why appropriate stop loss levels are raised in the weekly Trader’s Notes section. (It is imperative that you review this section in every Monday evening email!) Determining your entry point in a trade is a personal preference. Some subscribers enter at the Trigger Price (high risk, but potentially higher returns), while others enter upon confirmation (lower risk, but lower potential returns). This is another approach, which consists of dollar cost averaging UP, on light volume pullbacks, after a GorillaPick confirms.
Consequently, as Gorilla Trades subscribers have quickly recognized strength through “confirmation,” entering recklessly into these “confirmed” stocks could be costly to your portfolio’s performance. The Gorilla has always been devoted to steering his subscribers away from unnecessary risk in the marketplace. Therefore, recognizing and understanding the LVPB concept rewards subscribers with better entry points into “confirmed” GorillaPicks, especially during negative or flat periods in the market.
Many GorillaPicks that have already confirmed can continue to behave strongly; each time the market regains strength. However, during pullbacks or lull periods in the market, most GorillaPicks experience at least one, if not a series of, clear light volume pullbacks. These pullbacks often create excellent entry points or opportunities to add to your initial position. These opportunities arise AFTER a GorillaPick has shown strong characteristics (confirmed). The LVPB section provides excellent guidance to new points of entry, when using the Gorilla Trades portfolio as a menu of strong ideas.
Furthermore, this feature helps spread subscribers out even more, into the many different trading opportunities presented by the Gorilla Trades service. Subscribers have a completely diversified (and complete) choice of entry by considering a purchase upon trigger, confirmation, or on a light volume pullback (LVPB). Please always trade within your personal risk parameters.
Light Volume Pullback Examples
A further understanding of the term Light Volume Pullback (or LVPB) may lead to better entry points, which will result in a more profitable portfolio. While the Confirmation Day concept has proven to reduce trade risk, proper entry (or re-entry) into “confirmed” GorillaPicks should improve your portfolio’s performance even more. Furthermore, recognizing and understanding the LVPB concept will create better entry points into “confirmed” stocks, especially during negative or flat periods in the market. Please review some of these past and current GorillaPick examples; these examples exhibit multiple LVPB and will help you visualize the concept, which will assist you in entry into the Gorilla’s strongest trading ideas.
If you review the chart below of GorillaPick, VOLVY (which has been in the Gorilla Trades portfolio for months), you will see that it experienced a series of clear, light volume pullbacks (LVPBs). These pullbacks created fantastic entry points, or opportunities to add to your initial position. These opportunities are created after a GorillaPick has shown strong technical characteristics and has already confirmed. While the profit on VOLVY was about 20%, adding to the position on LVPBs could have netted more than double the return!
If you review the chart of GorillaPick CCK, it experienced a series of clear light volume pullbacks (LVPBs). These pullbacks created the best entry points, providing an opportunity to add to, or initiate, a new position in a GorillaPick that had previously shown strong characteristics (by confirming) and a constructive technical pattern.
Recent portfolio leader URBN experienced a clear LVPB a month after confirmation, then consolidated for two weeks before breaking out into all-time high territory. When a stock pulls back on light volume and ignores negative market activity, the Gorilla believes in watching it closely because this stock may present a ripe entry point for huge profits!
Previous big portfolio winner TXU is a prime example of a strong stock that offered multiple opportunities for entry (LVPBs). This exhibition of muscle during several market pullbacks is a clear definition of individual stock strength. When evaluating new trading ideas, the acknowledgement of a stock’s strength may reward subscribers with not only low-risk, but also immense profits!