Take It From The Top
Duke Heberlein is on vacation this
week. This column was written by Michael Brooks.
The TradersWire will give you a variety of setup alerts throughout the
trading day. To develop your own trading style and expertise, you should
not just blindly follow the given setups. Pick a few that fit your level of
comfort and make them your own. Always try to use a top-down approach to make
sure your trade looks promising in multiple time frames.Â
Let’s analyze one of
today’s alerts:
11:14:55
Intraday Setup Alert
Amazon.com (AMZN)
is forming an ascending triangle on its intraday chart.
AMZN is up 0.11 at 17.19.
So, what do I mean by a top-down
approach? Well, it’s always a good idea to
get in the habit of looking at some of the larger time frames above the one you are actually trading.
Let’s start with the daily
chart of Amazon.com
(
AMZN |
Quote |
Chart |
News |
PowerRating). AMZN has been strong over the last few months and recently pulled
back to the 50-day moving average (potential support). In addition, AMZN
formed a reversal bar the previous day, by opening and trading lower, then
closing back near the high of the day (a good sign). Combine this with the fact that the overall market appeared to be reversing to the upside,
and we have a potential bias for a long trade.
Now let’s move down to the 5-minute chart. We have
AMZN forming an ascending
triangle built on a series of higher lows. We also have AMZN forming the top of
the triangle by pushing up against the 200-day MA (note that the top line is not
a trend line but the MA). You can think of the price bars hitting the
moving average like a jackhammer.Â
As the hammer continues to hit the moving
average, it chips away and weakens the resistance. Notice how the third time was
a charm and we get our breakthrough to the upside. Now the past resistance
becomes support, and allows us to keep a tight stop right below this level.
A nice trade based on putting multiple time-frame biases in our favor.
Keep the top-down approach in mind for every trade you take. This will keep
you out of many bad trades that might look good and will increase your winning
percentage over time. I hope this gives you something to think about, before
randomly taking that next trade.
Have a great trading day!!