Stock Trading Strategies

STRATEGY #3: Gap Up or Gainer - Triangle - BreakOut

One thing I'd like you to notice about the stock trading strategies I'm showing you, is how some stocks will have a tendency to display a chart pattern that is very similar to a major stock index's pattern. Lets take a look at this next trading setup, Strategy #3 and I'll show you what I mean.

With this strategy, you're again looking for stocks that have either gaped up at the open or are on the gainer's list. The chart pattern you are going to look for is a Triangle. It can be either a symmetrical or an ascending triangle.

As with the other stock trading strategies I've shown, after locating a stock with a confirmed pattern, you can then enter a buy stop order directly above the triangle as indicated in the example below. If you get a price BreakOut in the desired direction, immediately place a stop below either the breakout bar or previous bar.

You may decide that support and resistance type stops run the risk having your stops hit by specialists or market makers. That's always a possibility, so you might decide to use dollar or percent stops. That's up to you.

Just like I said about exit strategies, no type of stop is ever going to be optimal. Some days your stops won't be touched, other days it just seems the market is out to get you. That's just the way the game is played.

If you get paranoid about your stops being intentionally targeted, you can give them some extra distance below support. Just remember, it'll be a trade off between being stopped out less often, and having bigger losers.

Here's an example of Strategy #3.

Stock Trading Strategy using triangle pattern

Getting back to what I was saying about these stock trading strategies sometimes taking on the same pattern as the overall market, in other words, an index such as the S&P 500. The chart below is of an Exchange Traded Fund (ETF) - SPY, which basically mimics the S&P 500 index. Notice how SPY on the same day as the stock above, formed a triangle pattern, before breaking out and going higher.

You are going to see this often with all of the stock trading strategies that I'm showing you. Some days it'll be a triangle pattern. Other days it might be a lateral or an inside bar or another one of the setups.

The point is the market indexes (S&P 500, Dow 30, Nasdaq 100), as well as the futures market has a great influence on the price patterns of individual stocks. For instance, some days you might find most of your breakout trades in the morning were coming out of a lateral pattern, simply because the S&P 500 was creating a lateral that morning too.

Take a look at this chart below and you'll see what I mean.

10 minute Chart of S&P 500

Below is another example of Strategy #3 on a different day.

Example of Strategy #3 on chart of HOG