In order for a trader to determine if the trade’s risk and reward meets the trader’s trading plan, he/she must have a potential price target objective along with a stop loss level. This price target is not the price a trader like to see or want to see, but what the price action might present. One of the obvious price targets is a previous pivot high level that could potentially act as a resistance. But if the stock is in a new all time high territory, there is no previous pivot high level to use as potential resistance. Fortunately for the technical traders, there are few technical tools that can be use to project some possible price target/resistance levels. One can use the measured move of an apparent price pattern if a price pattern exists. Another method is to use trend lines and price channels. Finally, the Fibonacci retracement tool can be used for price projection based on various Fibonacci retracement/extension levels.
To avoid the possibility of buying into a pullback after a breakout to a new all time high, one can use a tier system to establish the position. One can start a partial position by buying one third or one half of a normal full position. If the position goes against the expected direction, then the losses will be less than a full position. After the position is going in the trader’s favor, then one can scale in additional size without incurring additional risk. This tier system does not mean to average down. As a momentum trader, one should use the tier system to average up; buy high sell higher and trade in the direction of the trend.
Here are a few of the stocks that recently have made new all time high: FB, P, YELP. The top chart is the daily price chart, and the bottom is the weekly price chart.
Click on the chart to get an enlarged view.
FB:
YELP:
P:
