Posted by forex at 8:37 AM
Read our previous post
Trading Breakout Base Pattern Moves
1. Log onto a free stock charting service like FreeStockCharts.com. Pull up a quote screen and input all the stocks off the S&P 500 or the top 100 stocks on the Nasdaq. Link the quotes screen to a daily chart so that as you click on each of the stock symbols it will pull up automatically on the stock chart.
2. Scan through the stocks on the quote screen and begin scanning for a tight base pattern where the price action is flucuating between two very constricted price points for at least 13 price bars. Also, take notice of declining volume while the stock is in one of these base patterns. Typically, you want to see a stock that has had a big run-up but is stalled at this level. The reason why prices stall after a big run-up is that traders piled into this stock with massive buying but are now holding back and waiting to see if anyone else will jump in and buy at big levels. This is why the trading volume has declined. Nobody is selling but no one is really buying in big blocks of stock at the moment.
3. Mark down the two price levels that the stock is basing back and forth between. Keep a watch on the upper level as you want to spot the moment the stock begins to trade above that level on higher volume.
4. Enter the stock as it trades over the top of the price level that had been serving as a resistance area to the stock's original upward move. Confirm the entry when the stock trades on higher volume as it breaks out above this price point. Once it begins to resume its upward move that is an indication that a major player has stepped in to buy more stock at this price level and it will breakout to higher price value levels.