Breakout and pullback conditions for setups.
Before a stock or currency pair makes our breakout “watchlist,” it must satisfy two key criteria:
Stock or currency pair must be in uptrend
Stock or currency pair must have a valid basing configuration pattern.
How define an up trend (for down trend reverse conditions).
20‐day EMA must be trading at or near the 50‐day MA when the stock is forming a base and clearly above the 50‐day MA when in trend mode. For pullback trades, the 20‐day EMA must be above the 50‐day MA.
-20‐day EMA must be above the 200‐day MA
- 50‐day MA must be above the 200‐day MA
-Both the 50 and 200‐day MAs must be in a clear uptrend for at least a
few months.
- The price action should be in an uptrend with a series of higher highs
and higher lows in place over the past 3 ‐ 6 months (at the very least).
- Current price should at least be 30 ‐ 40% above the 52‐week low
Trend qualifier – rules for breakout setups in the picures the examples.
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| rules for breakout setups |
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| rules for breakout setups |
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| rules for breakout setups |
Valid basing pattern for breakout entry
- A base (or zone of congestion) is anywhere from 1 month to 1 year in length. For our style of trading, we prefer bases that form in a 1 - 3 month period that find and hold support of the 50-day
MA.
-We want to see “tight” price action in the base, especially during the last two weeks before the breakout.
-A valid base should pullback anywhere from 10 - 30% off the swing high. Once a stock retraces 40 - 50% or more, we begin to question the strength of the uptrend.
We must see a “higher low” form within the base. This is crucial to the pattern. Without a higher low forming, we have no way to set a stop and therefore can not define the risk.
- Volume should be declining during a base, or at the very least, not heavier than average. If there are too many days of heavy volume selling in a base, the base could be faulty.
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| Main characteristics of a valid base |
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| Main characteristics of a valid base |
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| Breakout Entry the trigger |
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| Breakout Entry |
A pullback setup occurs when a stock breaks out from a valid basing pattern and then pulls back for 3 – 7 days:
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| Pullback setup |
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| Pullback Setup |
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| Pullback setup step by step |
Reference Deron Wagner
Breakout entry, Pullback entry: swing setup examples.
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Piratebay
