[isatrader]

Trader Method

If you are following the Trader method, then do the majority of your buying on high quality continuation moves of a stock already in a strong Stage 2 advance that has shown A+ characteristics throughout the advance. Ideally it will have had a proper consolidation period of multiple months+ that occurs above a still strongly rising 30 week MA and will have shown a contraction in volatility and volume as the consolidation develops.

Stage 2 Continuation Breakout quality checklist:

Weekly Chart

1. Price Action
a) is price above a strongly rising 30 week moving average*?
b) is the 10 week MA rising*?
c) is price moving to new highs?
d) was there a contraction in volatility prior to the breakout. i.e this could be seen through patterns such as ascending triangle pattern or a cup and handle formation etc?

*In a longer consolidation base the 10 week MA can oscillate between up and down, and 30 week MA can get flat and will only just be turning higher again on the breakout week due to it's strength.

2. Volume
a) is volume at least two times the four week average by the end of the Stage 2 continuation breakout week?
b) did volume contract during the pullback on the down weeks?
b) did volume contract significantly during the right hand part of the consolidation base, especially on the down weeks, and get very quiet (below average volume) for a period prior to the breakout?

3. Relative Performance
a) is the relative performance of the stock versus the S&P 500 strongly above the Zero Line (Relative Performance 52 week MA)?
b) is the relative performance zero line itself rising?

4. Support / Resistance
a) is there significant near term resistance? If you need help visualising it, then look at the weekly Ichimoku cloud for a visual aid.
b) is the base significant enough in size to provide support should the price pullback to test the breakout level?
c) is the last significant swing low on the base close enough in order to provide a place for the trader stop loss to go with a suitable amount of risk/reward? If the continuation breakout was a gap up to new highs, then the stop loss can go below the intraday low of the gap day above the base.


Daily Chart

1. Price Action
a) is the 50 day MA above the 150 day MA?
b) are the 50 day MA and 150 day MA both rising?
c) did the price on the breakout day have a strong close. i.e. a close near the high of the day?

2. Volume
a) is volume at least three times the daily average volume on the breakout day?


Monthly Chart

1. Price Action
a) is price above the 30 month moving average?
b) is price breaking out to new multi year highs?
c) is price in Stage 2 on the monthly chart?

2. Volume
a) is monthly volume above average?

3. Support / Resistance
a) is there significant old resistance in view, that could come into play in the near future?

Again, this is not an exhaustive checklist and is still a work in progress, but if a stock fulfills all of these criteria listed, then it should increase the probabilities of a successful continuation breakout. But as before, you need to do the forest to the trees approach to make sure the market is healthy and that you are focusing on the strongest sectors, as with the Trader method it's even more important to be in tune with what the market is doing, as even the best looking setups will fail if the market is acting very negatively.