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

The Consolidation At Previous High Breakout Trading Strategy

This trading strategy captures a stock that is about to explode higher after a slight pause in its rise. However there must be a previous high that exist.

Criteria And Trade Management

  1. The stock must consolidate or drift sideways for at least 5 days.
  2. There must be a previous high which you can draw an "inverted V".
  3. Stock must be above rising 20 MA
  4. Buy when the stock breaks out of the consolidation
  5. Put a stop loss below the low of the consolidation
  6. Sell 1/2 or 1/3 when you reach a 1:1 Risk : Reward ratio
  7. Raise stop loss to breakeven when you reach a 1 : 1 Risk : Reward ratio
  8. Keep the other 1/2 or 1/3 to ride the trend higher.

GPK above shows how the stock traded sideways for some time. The stock was trading sideways at a previous high. You can draw an "inverted V" shape on the previous high.

The trader can buy the breakout above the consolidation and put a stop loss below the consolidation. Once the trader reaches a 1:1 Risk:Reward ratio he or she can sell 1/2 or 1/3. What this means is if you risk $100 in the trade and your profit reaches $100, take 1/3 or 1/2 of it off the table and ride the others higher.

The chart above is the 60 min chart of GPK. When you switch to the 60 min chart, you can see how the stock breaks out of the trading channel. You can also use the 60 min 50 MA as a trailing stop loss. Sell the entire position if it drops below the 50 MA.

More Examples

Below are more examples of this trading strategy. Take a look at them and study them.

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