What is the best strategy for "caputuring the initial breakout" for example -- EMC????
1) buy before the breakout. assuming it will breakout..
Nope. Too risky. The idea is to use the indicators to anticipate a breakout, but act when the price validates the indicators. This means to wait until the breaakout occurs. Also, it is important to watch volume on a breakout. You want the volume to increase on breakout, lets say about 50% or more.
2) put a limit buy order above the resistance point.
You want to ascertain the quality of the breakout. For that matter, the price can close for one day above the resistance level and then drop. So at that point in time, your were "faked out". I suspect MMs on NASDAQ are not above "faking" the investor out in this way just transact more business.
3) buy after initial breakout.
This is one place that an investor can move in to the stock. Like I said earlier, it can bew a fake breakout, so this is a more risky approach. I would at least in most cases wait until after the day following the breakout. If you do move into the stock at the initial breakout, I would put a stop in place to limit your downside exposure. I have never used this approach, so Richard would be the one to comment here.
4) buy after retrace from initial breakout.
This is the most conservative approach and can provide the best short term gains. When the stock does pull back and then bounce off of its breakout price level, and then moves up with volume validating, there usually is a significant run of the stock. The speculator can pick up some quick money here. However, it is important to know where the S&R levels of the stock is. If the stock has a significant resistance level just beyond its breakout, then there can be problems.
This is also a way to see if it is a false breakout. Furthermore, if the stock retraces, and instead of bouncing, it breaks down through its original breakout price level, then the stock can move down quickly. By the way, the false breakout from a retrace of a prior breakout is one of the most reliable price patterns to go by. The stock usually move down a significant amount in a short period of time. Once again it is important here to know where the S&R levels of the stock is.
Richard, any feedback or comments?
Bob Graham |
