Posted: 19 Aug 2010 03:59 PM PDT
I wrote this article on February 8, 2010. It’s been six months and I know that many new folks have never seen it before. During this month, I’ll do re-postings of my best educational content because new folks who barely know me never got the chance to read my past posts. It’s also nice for me to edit the articles to make them slightly better, otherwise known as ’2nd edition posts’. If you read my archives, then it’s simply nice to have a refresher once in a while. I do hope the re-print articles help in some way.
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There are three types of entries: Aggressive, Regular, and Conservative. For the sake of saving time, I’ll just use a positive market in my examples.This works especially well for post-earnings same day reactions and primarily applies to secondary intra-day breakouts.
The Aggressive method is most favorable when the general market is up, increasing the odds of a successful setup. This is when you enter before the confirmation of a breakout. A good recent example was my LXK play, where I got in about 30 seconds before the breakout. This is aggressive because if you are wrong, then you will book a loss. I don’t think I’ve ever broken even on an aggressive entry trade when I was wrong. However, if you are right, then this method maximizes your gains more than the other entries. you get in when there is enough liquidity/activity in the price movements and there is a volume spike towards the high of the channel indicating that it may possibly have a chance to break out. Your stop, mental or hard, would be at the bottom of the channel.
The Regular method is favorable during positive to neutral market conditions. It is when you aren’t as nearly sure, but there is still a high chance of a breakout. Ideally, you want to get in when a consolidation pattern forms at the top of the channel on the same price/volume characteristics listed for the Aggressive method -or- immediately on the actual breakout itself. This entry’s weakness is on fakeouts where you will most likely book a loss and sometimes, breakeven. Your stop would be on the breakdown of the stock from the upper channel to the lower channel. Most of the times, I use this entry because I am able to get in either immediately before confirmation or on the confirming breakout.
The final entry is the Conservative method. This is when you get in after the breakout on the first pullback, usually at the upper channel resistance, which turns into support. The problem with this setup is that sometimes the stock does not pullback for a lengthy time. I use this setup if I am late and actually find it. This entry contains the most confirmation of the other entry methods. If support is tested, then the stock retains it’s strength allowing you a “second chance” entry into the stock. This setup is safer because you are not guessing as to whether a stock will breakout or not.
Since everyone’s risk tolerance is different, you may want to key in on which entry suits you the best. Experienced traders can perform on all three methods, however, I advise beginners to master one type of entry that best suits their personality before you try to do all three at once.
http://chartsgonewild.com/2010/08/19/three-types-of-channel-breakout-entries/
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There are three types of entries: Aggressive, Regular, and Conservative. For the sake of saving time, I’ll just use a positive market in my examples.This works especially well for post-earnings same day reactions and primarily applies to secondary intra-day breakouts.
The Aggressive method is most favorable when the general market is up, increasing the odds of a successful setup. This is when you enter before the confirmation of a breakout. A good recent example was my LXK play, where I got in about 30 seconds before the breakout. This is aggressive because if you are wrong, then you will book a loss. I don’t think I’ve ever broken even on an aggressive entry trade when I was wrong. However, if you are right, then this method maximizes your gains more than the other entries. you get in when there is enough liquidity/activity in the price movements and there is a volume spike towards the high of the channel indicating that it may possibly have a chance to break out. Your stop, mental or hard, would be at the bottom of the channel.
The Regular method is favorable during positive to neutral market conditions. It is when you aren’t as nearly sure, but there is still a high chance of a breakout. Ideally, you want to get in when a consolidation pattern forms at the top of the channel on the same price/volume characteristics listed for the Aggressive method -or- immediately on the actual breakout itself. This entry’s weakness is on fakeouts where you will most likely book a loss and sometimes, breakeven. Your stop would be on the breakdown of the stock from the upper channel to the lower channel. Most of the times, I use this entry because I am able to get in either immediately before confirmation or on the confirming breakout.
The final entry is the Conservative method. This is when you get in after the breakout on the first pullback, usually at the upper channel resistance, which turns into support. The problem with this setup is that sometimes the stock does not pullback for a lengthy time. I use this setup if I am late and actually find it. This entry contains the most confirmation of the other entry methods. If support is tested, then the stock retains it’s strength allowing you a “second chance” entry into the stock. This setup is safer because you are not guessing as to whether a stock will breakout or not.
Since everyone’s risk tolerance is different, you may want to key in on which entry suits you the best. Experienced traders can perform on all three methods, however, I advise beginners to master one type of entry that best suits their personality before you try to do all three at once.
http://chartsgonewild.com/2010/08/19/three-types-of-channel-breakout-entries/
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