Breakout Trades
The Intel (INTC) chart below shows us a high probability break-out . It
has several key features:
·
breaking above a significant
level. Ideally, this is at all-time highs, but in this example it is at the $53
level which has acted as resistance 4 times. Note how each time this level has
been tested the downside reaction is less. This tells us a break-out is
imminent.
·
Ideally the break-out comes in
a potential wave iii of 3 in an Elliott Wave sequence. This should mark around
the half-way point of the trend and tell us there is much more upside. A
break-out in wave 5 is something to avoid, even fade.
·
The break-out should continue
higher and should not re-test the break-out level for at least a few sessions,
if at all. Beware if the break-out session closes weak.
·
Above average volume is
desirable.
Entry is best ASAP on the break-out day if the stop-out level is not too
far. In the INTC example, we could have bought the open around $54, with
a stop just under $53. If the stop-out level is too far we have to wait
for a consolidation when channels/MAs catch up with price. This would be less
of a break-out trade and more of a pullback in trend - see appropriate blog.
