'Buying On Dips' Heaven

Of course, as the old saying goes, "all good things must come to an end." Inexperienced traders who were conditioned into thinking that the market is this easy to make money from all the time, were taught a painful lesson over the past two months--if they didn't implement good management strategies.

Still, it's nice to be aware of these stocks when they get locked into these types of patterns and exploit them for what they're worth. You just have to be careful to keep your stops tight and be aware that what's hot today will not necessarily be hot tomorrow.

With that in mind, here's a chart of Advanced Micro Devices (AMD | Quote | Chart | News | PowerRating). When you look at this chart, you can't help but think about how much money you could have made, had you detected this pattern back in January. Look at how the stock ratchetted higher by consolidating, breaking out, consolidating, breaking out, etc. All of this action occurred off the stock's 20-day moving average...like clockwork.

During the heyday of biotechs, I noticed dozens of stocks exhibiting this enticing pattern. Like the mythical sirens calling the sailors to their death in ancient Capri, patterns like these get traders hooked all the time. The key to success is to break your addiction at the right time.