Re: Breakout example, <<How much of a penetration of the support is acceptable?>>
Good question. Usually the answer would be, no penetration of support is acceptable. By one has to define what is meant by "penetration".
I change the example chart a little to make it easier to read just what happened 10 months ago:
chart4.bigcharts.com:80/chart?time=8&freq=1&uf=0&lf=4&type=1&style=3&size=3&compidx=aaaaa&symb=kr&comp=&maval=10&state=0&ma=3&r=chart&onbad=badsymbol&country=us&sid=2783&sec=c&xyz=102774109&s=23449
As you said, there was a sharp drop before the stock rebounded. On closer look, you can see that although the price dipped below support at $30 intraday, it managed to close at support. In my experience, closing prices are more significant than intraday prices. For me, a close at support equals a hold of support.
<<How long does the price have to hold? >>
That's always difficult to know when it's taking place. In the late Oct example above, confirmation of the hold would have been on the day following the sharp drop below $29, when the price opened and closed higher than the previous day's close. That would have gotten one into the stock at about $31 1/2.
<<How long of a flat line of resistance is required to effectively trade a price breakout?>>
This varies from about 7 to 13 weeks, in the most successful breakouts. In the late summer breakout, it took about 13 weeks for the pattern to complete. In Dec 97 - Jan 98, a breakout occured in the course of only 7 weeks of resistance at $37.
chart4.bigcharts.com:80/chart?time=8&freq=1&uf=128&lf=4&type=1&style=3&size=3&compidx=aaaaa&symb=kr&comp=&maval=10&state=0&ma=3&r=chart&onbad=badsymbol&country=us&sid=2783&sec=c&xyz=104104000&s=29879
One thing to remember about resistance levels is,
it only takes two stops at any price point to define a resistance level. A break of resistance can occur on any attempt thereafter. The Jan 98 breakout in KR is an example of that. That pattern is actually a classic ascending triangle pattern -- flat on the top, and rising line left to right on the bottom.
-Trader X |
