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Strategies & Market Trends : Flat-Base Breakouts on Heavier than Normal Volume -- Ignore unavailable to you. Want to Upgrade?

To: DD™ who wrote (6)	6/5/1998 6:57:00 PM
From: rakitup	Respond to of 34

Double D, in futures trading we say a commodity is building a narrow sideways channel...just draw a line across the top and bottom to create the channel. The channel must include all trades during the period in which the underlying has been in this particular trading range, and it is important to take note of the length of the channel created. On a breakout, either above or below the channel, we look for a confirmation of a second close before entering. We then enter (long or short) and usually place a stop on the opposite side of the channel as downside protection. These opportunities abound in stocks, much more so than in futures, but one must have the patience to wait for the breakout and then the facility to act quickly upon confirmation of two to three closes away from the base. We also find breakouts from triangle formations to be particularly profitable. Being of a different nature, triangle formations are generally of shorter duration. In either case, a narrow trading range or breakout from a triangle you can expect the up or down move to approximate the length of the channel thus after a few days out it is fairly easy to set a reliable exit target, most important when playing with volatility. My ideal situation in shares, either from a breakout or from O'Neil's cup with handle formation is to purchase at the money or in the money calls on the fourth day after three successively higher closes because you just get in there as the volatility hits the option...don't forget it has been dead money for a while. Often, you'll want to be out of this option within a week or two as the volatility lessens. I don't use a stop loss order, only a time stop in these situations. And, I want to be out 4-6 weeks prior to expiration, so you can't buy every attractive option with this exit strategy, unless you pay the premium for the farther out contract. Rak up a winner.