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- A pullback to the buy point is a normal, albeit frustrating, part of investing in growth stocks.
- Roughly 40% of successful stocks go back around their buy point before resuming their advance, so be ready for this situation.
- “Buying precisely right solves most of your selling problems.” – William O’Neil, IBD Founder.
Explore the dynamics of stock pullbacks and their critical role in investment strategies for growth stocks.
A Normal Pullback
Your typical normal pullback will usually occur within days, rather than weeks, of the initial breakout. You should see a gradual price decline with weaker volume as the stock returns to or just below the buy point. A harsher decline that falls outside of these parameters, and you should start to consider cutting your position.
Growth Stocks: A Quick Charge, Then Big Run With Axcelis
Axcelis Technologies (ACLS) was one of the growth stocks that used a normal pullback to its advantage last year. After a short consolidation, it broke out May 17, 2023, just barely clearing the 136.38 buy point. The next day, the chip-equipment company’s shares jumped again. The stock closed nearly 7% past the buy point. Be sure to always buy within 5% of the buy point, or 143.20 in this case.
Conclusion
Understanding the nuances of stock pullbacks can significantly enhance your investment strategy, particularly with growth stocks. Recognizing the difference between a normal pullback and potential downturn can save investors from unnecessary losses and position them for substantial gains.
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