In order to be prepared for the price pattern breakout, one needs to start monitoring the potential price pattern as soon as it has been identified on the daily price chart. One should start monitoring the pattern development progress on the daily price chart as well as on the intraday day price chart for possible breakout level. Since we are interested in swing trading, the intraday chart time period should not be shorter than 30 minutes period. Using too short of a time period will generate too much noise to get a clear potential support and breakout level. The intraday chart used in this discussion is based on a 78 minutes period. The reason 78 minutes is being used is the regular trading session hours can be divided into five equal periods. The time period used is personal preference and arbitrary. The 30, 60, or 65 minutes time periods will work just as well.
Lets skip down to take a quick glimpse at the daily price chart for SNDK before we start looking into the intraday chart. From the daily stock, we can see on 10/1/2013, the price is making a move up toward previous pivot high and appear to be in the process of forming a bull flag. After this observation was made on that day, one would switch to the intraday chart and start identifying the potential breakout level and potential support level.
In the intraday chart, the level labeled with a ‘1’ has been identified as one possible breakout level, and a breakout confirmation level has been identified and labeled with a ‘2’. After the price has moved above this confirmation level, it formed an evening star price pattern with the high of the shoot star candle as potential resistance on the intraday basis (labeled as 3). The price retraced back under the breakout confirmation level and tested the upper trend line of the flag pattern, then it resume its upward trend and moved above the resistance level labeled with a ‘3’.
Now that the price has broken out of this bull flag, we will switch back to the daily price chart and project some possible resistance and price target. By placing a copy of the flag pole (labeled as ‘4’) on the lower pivot prior to the flag breakout will allow us to project a target price using the measured move of this bull flag (labeled with a ‘5’). This measured move project a price target slightly above 66. In addition to this price target, there is also an intermediate resistance identified and labeled with a ‘6’. This resistance level is the close of 7/22/2013, and the intraday high from the last trading session got near this price level.
In addition to the price levels, the daily chart also show the 20 EMA is rising (blue line), and the 50 SMA is also appear to be flatten and turning slightly upward. More importantly, these two moving averages are above the rising 200 SMA, and the price is trending above all the moving averages. Finally, the MACD is also turning upward. All these positive technical provide additional confirmations for a potential upward move from this pattern, but not a certainty.
At this point of the price move, if one is in the trade then one can simply manage the trade by trailing the stop to protect the profits and avoid turning this winning trade into a losing trade. But if one is not into this trade, one could potentially enter the trade when the price moved above the resistance level but with possible reduced upside and increasing risk.
As with any technical analysis and trade planning, it is important to use multiple time frames to identify entries and exits, and not to wait for the pattern to have developed before start planning. In order to develop into a good trader, one needs to learn how to identify potential developing pattern prior to the pattern actually has developed. When the trigger occurs, you will be ready to put on the trade with a prepared trading plan.
Disclosure: Long SNDK.
