If you have ever wondered where to enter an uptrending chart, then you may find this month’s trading strategy helpful. Many traders are concerned about buying too late in a trend, out of concern that they will be buying the top. There are a couple of technical patterns that you can be on the lookout for to help you know if you’ve got a reasonably strong trend that is worth buying into, including price channel breakouts and gap continuations.
Upside price channel breakouts.
After a stock has trended for at least two weeks, it is often easy to mark out a channel within which it is trading, as seen in Figure 1, of Overstock.com Inc. (OSTK). What you want to be on the lookout for is the emergence of a secondary trend following a small gap, as was seen on July 30. This constitutes an upside breakout above the preexisting price channel and is worth buying. You could either initiate a new trade once this signal is observed, or scale into an existing position.
Step-by-step action plan.
Here’s how you can start using this strategy:
Step 1: Visually scan for charts that have two or more weeks of price action in a defined uptrend, as seen in Figure 1. Keep those tickers in a watchlist and periodically review them until you see one of them making a small upside gap breakout
Step 2: Enter your position once price has moved at least $0.50 above the high of the day in which the price channel breakout was observed.
Step 3: Use an initial stop-loss at one dollar below the low of the day in which you entered, using a $2 trailing stop.
Trade With Varchev Brokers