Intraday Trading Charts
August 29, 2011
Intraday Chart: Strategy #1
Most often I've used a 10 minute chart when trading this intraday strategy, but a 5 minute chart works well too. I'm using a 5 minute chart in following example. This trade signal requires a full gap or partial gap, an inside bar to form during lower volatility and then a breakout of the inside bar. IPG (below) formed a partial gap, meaning this stock gapped well above it's previous day's closing price, but below the previous day's high.
IPG then formed an inside bar. Price later broke above the inside bar, only to drop back and close inside the bar forming a lateral. A well placed stop would've easily kept a Long position alive until the stop could be moved upward and trailed behind.
A strategy #1 trade signal can be fantastic off a full gap set-up, but what I'd like you to notice in this next chart below below, is how and why trades can be profitable from 'partial gaps' as well.
While blue sky and no nearby resistance above a full gap set-up can often create profitable trades, multiple resistance levels breaking can also cause price to move substantially higher when using partial gap set-ups.
On this 4 day - five minute chart of IPG (below) you can see that the resistance area above that inside bar on the intraday chart above actually consisted of no less than seven points of resistance. Once price broke through -- it was onward and upward for IPG. Once a stock can break multiple points of resistance that's combined over several days to form a tight resistance area, price moves can be quite substantial.
Bottom line: If you're watching a Strategy #1 (partial gap) set-up, take a look at several days worth of bars to see what kind of resistance is above. If it's tightly packed, like our example here, price might have a good chance of making an explosive move up if price can break out.