The mid-morning pullback is a phenomena often seen in financial markets, where it may simply be a brief reversal or a slight pause in an upward momentum. For example, markets will often end up stronger and race higher before seemingly running out of steam and reversing course.
Reasons for a mid-morning pullback includes short-term profit taking by longs and willing short sellers. Investors often see this as a buying opportunity when this happens.
Here are three ways you can take advantage of these pullbacks:
Take Your Profits
Take profits after the initial run higher or lower in the first 90 minutes of trading. If you bought at the open, you may want to consider taking a quick profit on your position, once the move appears to have run its course.
Look to Get Short
You can also look to sell into such a rally or sell-off in the first 90 minutes of trading. Because longs may decide to take profits or shorts may decide to take profits and cover, markets may see a reversal that can present an excellent risk/reward trading opportunity.
Get in on the Pullback
Markets will often race up or down right out of the gate, especially if there is a gap higher or lower. Rather than chasing such a move, being patient can pay off big time. You could look to buy or sell a retracement (a temporary price reversal) back to the open. Often times, markets will find their way back to the opening price before once again moving back in the initial direction. This may present an opportunity to buy such a pullback with a tight stop and an excellent risk/reward trading opportunity.
Keep in mind that mid-morning pullbacks may not happen. Markets can and do open higher or lower and proceed to keep moving in that direction for the remainder of the session. Sometimes, markets will gap up or down and simply sit there the rest of the session. Be especially careful if looking to sell into a rally or buy possible support. And most of all, remember to be patient.