The mathematics of pivot calculations dictate that the narrow-range final day of a Switch Hitter pullback will result in resistance being right around, if not exactly at the entry price. Although the pattern has proved itself highly reliable over time, buying uptrend pullbacks in a down trending broader market can be tricky and result in whipsaw losses. This is where some old fashioned tape reading and pattern recognition skills can come in handy.

My trading plan had Switch Hitter setups in Hershey Foods (HSY) and Omnicom Group (OMC). Omnicom made a move directly to the profit target, and serves no illustrative purpose here. Hershey, on the other hand, wound up reversing for a loss and is a good example of how and when to adjust an exit.

First, letââ,¬â"¢s take a quick look at the setup.

Hershey Foods Switch Hitter June 6, 2006
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The HSY Switch Hitter is pretty textbook, as the stock traded up to new highs in late May, and pulled back 50% of the last leg of the move on June 6, closing just above the 200-period simple moving average.   Our planned entry price was 56.40, with an initial profit target of 56.95 and a protective stop at 56.04.  The central pivot for June 7 was 56.03, with R1 at 56.37, just below the entry. This created a situation in which weakness above R1 could easily result in a reversal and trade back to the central pivot.

Now letââ,¬â"¢s take a look at what happened during the trading day:

Hershey Foods Intraday June 7, 2006

The stock opened at S1, traded up through the central pivot and triggered our entry (1) on heavy volume. A quick 38.2% reversal through the 8-period simple moving average on decreasing volume resulted in a Fibonacci reversal and a retest of the previous high (2).

When the high at point 2 failed to follow through, and volume failed to confirm the move, we felt it was time to ratchet up the stops. Double tops often do not reverse, but in a market as prone to downside as we have recently witnessed, caution is definitely the operative word. We exited on the move back below R1 at 56.30, booking a .10 loss on the trade, and committing ourselves to reenter if price made another turn to the upside.

I know that it flies in the face of the Plan the Tradeââ,¬Â¦ Trade the Plan philosophy, but sometimes part of the plan has to be an ability to reassess a fluid situation on the fly.   

Julie Peterson-Manz is cofounder of TraderInsight.com. Email her at Julie@peterson-manz-trading.net.