Darren, seems like a pretty simple rule, but I use it successfully quite often. Where I sometimes make mistakes, is that if a stock gaps up, past yesterdays high, then passes back below the high (say 1 pt.), and then surges back through the high, it doesn't seem to follow through. I still consider this a buy signal. Maybe I shouldn't since my success rate on this type of action is lower. Whats your take on this?
Well, I would define follow through on a day trade as 1/4. If the second time through the high does not create follow-through, I would treat it as a bounce and SS, unless there was a specific longer term pattern that I was aware of. Also, if I go long and there is no follow-through and then I go short and there is no follow-through, I stop trading that stock for an hour or so...
INTC: A good example of your rule might be INTC today. INTC just crossed 88 1/8...has shown no follow-through, but I think it will close above 88 1/8 today. Just a guess...I have no hard-and-fast rule for when to bite and when not to -- obviously not all breakouts are created equal.
Also, I have heard of a derivative of High/Low where you take the H/L from 10:00 EDT and treat that as the threshold. If a stock goes through the high any time during the day, B. Through the low, SS. Again, this doesn't help multiple new Highs/Lows...
Finally, GAPS. If the gap is greater than 1/2, I use caution. If less than 1/2, I just go with the flow until it is proven that the flow is a lie. |
