Breakout and pullback tradesTwo basic stock market strategiesAs I mentioned, I use support and resistance as my most important stock analysis tool. And all trades and strategies are based on these levels.So I defined two basic trade types for my simple stock trading. Break trade This type of trade expects that there’s so much interest in buying or in selling the stock that an important level of support or resistance will be broken. I expect that investors and trading activity during this break is so strong that the price of the stock will move to profitable levels quickly. You can see the situation before a breakout of a resistance level on this chart of MYGN stock.
This was really a textbook example with a huge move. Pullback trades This type of trade looks for opportunities for a bounce of the support or resistance level. Such a bounce can be found after a break of the resistance (now support) level or in a developed trend. It’s known as a method for stock trend trading. You can see some consolidation after the uptrend on next example. The support level for the price is represented by
moving averages
and a rising
uptrend line
.
You can see what happened after several days on this stock chart.
These examples above are for long trades. But you have to use these types of trades also for short trades. You need only invert the examples and use support for breakdown and resistance for pullback.
Return from Breakout and Pullback trades back to Stock trading system |
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