For any given stock, when I see a pattern shift in I stalk the next pullback for a possible entry. Let me explain by starting with past action in Goldman Sachs (GS) as an example. Into the June 4 low we saw a clear pattern of lower lows and lower highs, and the first time it took out a prior swing high was when it surpassed the June 12 high of $97.50. As a general rule, when this occurs I consider it a "shift" in pattern -- in this case, from bearish to bullish.
The high was only surpassed by $0.10, but even with a move like this I still might stalk the next pullback to see if it holds and triggers a buy entry. As you move forward on the Goldman chart, notice that this prior high was then surpassed by a decent margin. The next two pullbacks after that were followed by a couple of tradable rallies.
With that in mind, I'm now seeing a pattern shift in F5 Networks (FFIV), so that means it's time for me to stalk it for a possible entry on a pullback. In this case, the pattern shifted when shares took out the July 30 high. Right now I'm interested in the $93.20-to-$96.10 area for a possible buy entry, with the maximum risk defined below the Aug. 2 low made at $90.29.
The way I like to work this is to wait and see if the stock tests the key support decision, and is able to hold above it. Once I see this, I go down to a lower-time-frame chart -- maybe a 15-minute or 30-minute in this case -- and wait for my trigger to fire off before I place a bet. If F5 shares do test this zone in the next few sessions, I will post an example of a trigger chart, time permitting. If the Aug. 2 low is taken out instead, I will back off the buy side until further notice!
For more information about trades and triggers, please refer here.