When to anticipate a swing breakout

  • Posted by on June 1st, 2015 at 10:11 pm

We were asked this evening if we have a blog post that deals with when we anticipate a swing breakout versus when we wait for confirmation.  The answer was no– so here we are filling in the void.

Let’s keep it simple and clear:

If we are buying off support, or we are buying a bounce on a “broken” chart, then we wait for confirmation.   $LNKD today is a great example — we have been stalking this stock for weeks, but every night in the newsletter we have written to not anticipate and wait for confirmation.  Today the confirmation came on the set-up over 20sma.   We’ve learned the costly way that it’s not worth owning a stock in a down-trend waiting for a reversal.  If you want to get cute and buy a bounce, wait for it to confirm — it’s worth paying up for it than trying to anticipate a turn that likely will a) either not come at all or b) shake you out before it comes.

So when do we not wait for confirmation and get in a swing anticipating a breakout in the subsequent days?

a) Stock is in uptrend above all major moving averages (20, 50, 100, 200 SMAs) on daily.

b) Stock is not extended (from the 20sma) and is within the Bollinger Bands with a solid base on daily chart (we never chase).

c) Stock has a magnet type breakout point above that in our opinion will pull it up

d) Hardest one to gauge:  Benign tape

That’s the gist of it — of course it takes a while to get good at it and you need to put in the screen time and the experience, but that’s a good structure to follow — at least for our type of trading.

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