When Short-Term Setups Can Be Useful To Longer-Term Traders
Most intermediate-term practitioners who buy breakouts
stress that an important component of their strategy is purchasing the stock
fairly close to the breakout point. The 5% number seems to be the most
common. In other words, you should look to purchase stocks as they break out of
basing patterns, but if you don’t catch the breakout as it happens, don’t pay up
more than 5% for the stock. If it runs up more than 5% before you have a chance
to get in, forget about it.
Yet some of the most successful breakouts will go on to make 100% or more. To
the trader who is familiar with short-term trading techniques, additional entry
points will many times be available. Rather than scratching a stock off your
list because you missed the breakout, you may want to consider keeping a close
eye out for alternate entries.
(
SOHU |
Quote |
Chart |
News |
PowerRating) is a stock that has had a tremendous run over the last few
months. The stock broke out of a nine-week basing pattern on March 26. The
stock closed that day 16% above the high of the base — too extended to consider
an entry according to most people. Since that day, the stock has nearly
tripled. Looking at the chart below, I’ve pointed out a few areas where the
astute trader could have used short-term setups to enter the trade, and with
proper trade management, still be in it with a portion of their position.
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So when a stock gets off to
such a great start that you miss your ideal entry point, consider stalking it to
see if it might offer an additional low risk entry for you. Most of the best
stocks will. In SOHU’s case, even the
Connors’ Trading Window setup, which triggered after the stock was already
extended about 100% from it’s base, is currently showing a 50% profit from the
trigger point. Of course, if you are using a short-term pattern for entry, you
should also set your initial stop based on that short-term pattern.
As I mentioned
last Wednesday, healthy markets often rally towards the close of trading and
finish the day near their highs. This has occurred four of the last five days
and was once again the case today, as the S&P 500 and Dow broke above their
recent highs. The Nasdaq set a new closing high, but has not yet taken out the
intraday high from June 6. Pullbacks continue to be brief and shallow. A deeper
pullback will occur at some point, but I believe in riding trends as long as
they last. Therefore, the long side still looks like the place to be, and until
there is some convincing technical evidence to the contrary, that is where I’d
continue to focus.
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Best of luck with your trading,
Rob Hanna