Anticipating a breakout gives you an opportunity to enter potential breakout stock ahead of actual breakout or within first 10 to 40 cents of its breakout depending on price.
If you master the anticipation setup you can find 1 to 5 good trades daily which in many cases are instantly profitable in first 30 minutes itself.
ARNA is an example of that kind of trade I did yesterday.
Because of its narrow range consolidation it was on my 39 dollars plus anticipation scan. I entered it in first 7 minutes with very close 20 cents stop. The stock had a breakout and kept going up after that.
There are 3 to 10 opportunities like this everyday. If you know how to find them , you can have trades with very low risks as the stops on such trades can be very close.
As stock gain momentum they undergo periods of fast moves followed by periods of pullbacks and consolidation. The pullbacks and consolidation periods offer you an opportunity to anticipate a breakout and enter with very close stop or enter with order few cents above the consolidation.
In case of ARNA it had 2 days of big breakout couple of weeks ago , that was followed by very compact consolidation near high. The consolidation had very low volatility and was primed for breakout. Identifying this stock previous night allows you to watch it intently next day or create a Buy Stop Limit Order (BSLO) and enter as it breaks out of the narrow consolidation.
If you are an active trader and looking to make money frequently, anticipation setup offers you such opportunity. All the work involved in this setup is previous night before market opens. You have all the time to find the best anticipation setups and plan your entries , stops and exits.
can daily for stocks with momentum that are undergoing range contraction. A range contraction scan will help you quickly find such stocks. After that narrow your list to 3 to 5 top quality setups and then watch them in first 10 minutes. Most good anticipation setups breakout in first 10 to 15 minutes of open.
Once you have anticipation candidate ,look for early entry on it. If you wait for breakout to buy then the entire effort is wasted. Ideal entry is where you risk just few cents or less than 2% to get in early. This requires either entering before breakout or entering with a order few cents above yesterday's action.
Anticipating a breakout helps you get an early entry and can improve your per trade profits. It also can lower your risk as your stop is closer. It can help you profit from even smaller moves as you can also capture breakout day gains. For that entry without waiting for breakout is best.
Anticipation requires more pre planning and effort than buying a breakout. You need a process flow to do that. The process should be efficient and done daily after the market close or open. It takes me around 15 minutes to generate my list of candidates daily. I look at around 100 to 300 candidates to boil down to just 1 to 5 good candidates for entry next day.
What to look for in good anticipation setup
- series of narrow range days in pullback/consolidation
- orderly pullback with no 4% b/d during the pullback or consolidation
- low volume pullback
- low volatility during pullback
- linear first leg if looking as continuation setup
- Stock should go up smoothly and not in volatile manner
- 3 to 10 days consolidation/pullback
- not up 3 days in a row
If you have a burning desire to be profitable trader and want to develop a low risk high reward trading setup , then anticipation is for you.
1 comment:
Thank you for sharing your knowledge. Can you please explain “linear first leg”? Specifically, how is it you define the various “legs”? Thank you!
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