Important Stocks To Watch - Stocks At Or Near 50 MA, 200 MA, Chart Patterns

Break Downtrendline At 20 MA Trading Strategy

This trading strategy takes advantage of an orderly correction to the rising 20 day moving average. The keyword here is "orderly" correction. If the correction was messy then it cannot be a setup.

With an orderly correction, you can easily draw a downtrend line to connect the highs of the correction.

Criteria And Trade Management

In order to find a setup we need to find a stock that is in an uptrend.

  1. Stock should be making higher highs and higher lows in an uptrend
  2. The stock should correct orderly to the rising 20 MA
  3. Draw a downtrend line to connect the highs of the correction
  4. Buy the stock when it trades above the downtrend line
  5. Put a stop loss below the entire correction
  6. Raise the stop loss to breakeven when you have a 1:1 risk: reward profit
  7. Sell 1/2 or 1/3 when you have a 1:1 risk reward profit
  8. Ride the other 1/2 or 1/3 to higher profits

In the chart above we can see how KEYS was in an uptrend. The stock corrected orderly to the rising 20 MA and then it broke out higher. A trader could buy the breakout above the downtrend line and put a stop loss below the low of the correction.

If you go down to the 60 min chart, you can usually draw a better down trend line.

The 60 min chart will help you to spot the break of the downtrend line better.

It takes some practice to draw a correct trend line. But with time, you can draw a nice one.

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