Let's take a quick look at Baidu (BIDU) which has turned out to be one of the stocks that "keeps on giving" to investors and traders in 2009. Let's learn a couple of lessons from its steady uptrend price rise so far.
Price began 2009 into positive momentum divergences (not shown) which completed a "Rounded Reversal" chart pattern. Since then, and since rising off the "Cradle Trade" (price pullback into the exact crossover of the 20 and 50 EMA in early March), price has maintained a steady and healthy uptrend until mid-October.
In an uptrend, the focus turns to the 20 and 50 period exponential moving averages for clues as to where to enter long into an uptrending stock, and to monitor 'structure' to ensure that price stays relatively close to the up-sloping averages and spends little if any time beneath them.
Thus, moving averages help assess structure (trend) and create opportunities (buying dips into support).
Each stock has a unique character, and BIDU shows us one of its own. Take a close look at the three recent pullback buy signals in May, July, and August. Price seems to prefer forming "Double Bottoms" into support before rallying higher. This is important to know if you want to trade BIDU from a swing trader's perspective.
Also, price has a history of forming flat-line or gently downward sloping lines at the peak of each price swing, and then a gap or strong move upwards breaks above the overhead resistance areas, which also reflect fresh, new buying opportunities (again, for swing traders). That is good to know too.
Thus, from observing recent history, we've gained a few clues as to the ‘character' of traders/investors in BIDU stock. This is how you should look at individual stocks - look for their repeated quirks and idiosyncrasies.
Let's take it one step further and look at how BIDU prefers to form "Measured Moves" or roughly equal price swings - these can be helpful in price targeting and expectation as well.
As this chart from TradeStation shows, I've measured swing highs and lows using the trendline tool which returns back percent and price data.
On the most recent three "swings" (or "pushes,") price has shown a tendency to prefer the $80 to $90 range per swing.
Thus, it's probably a good idea to cinch (take) profits once a swing carries beyond the $80 area.
The current swing only rose $62 to the recent highs (which - not surprisingly - formed a momentum divergence). Might the character of the stock be changing? That's critical to know.
Use these lessons as examples of how to look at the "character" of a stock, and how it has been "behaving" in the recent history.
This helps set expectations and trading opportunities (mostly again for swing traders), but it also clues you in when something should happen and it doesn't - it could indicate a change in character that you'll be able to pick up on faster than those who are not aware of the "character" of a particular stock.
