The market is closed today for the 4th of July holiday, Independence Day…
…but you know me
…I eat… sleep…trade.
And although I won’t be trading today, I will be doing some light research in between the food, fun, and fireworks.
While the 4th of July reminds us to be grateful for the freedom we have as Americans …I’m working hard to put together educational lessons and actionable trade ideas… so that you can live with the ultimate freedom.
(Trading not only has given me the ability to provide for my family and live my best life, its also given me the freedom to help others. If you’d like to learn more about how my Freedom Trader service can help you, then click here to learn more)
Now, I’ve been able to consistently profit, finding high-probability trade setups throughout the year by focusing on catalysts, patterns, and value.
Today, I want to talk to you about patterns. More specifically, one of my bread-and-butter formation patterns— the continuation.
“JB, I’m learning daily. Thx for all this knowledge. I took $740 profit on ATOS early. I bought it yesterday on the continuation pattern.” ~ Sheri J.
As Sheri can attest…it’s not that difficult to learn, and once mastered, it can end up being a profitable setup for you too.
And I’m about to teach you how it works.
How the Continuation Pattern Can Uncover Trading Opportunities
You’ve probably seen this before… a stock runs up… stalls or pulls back a bit… then continues higher.
Well, a lot of traders actually fail to spot this pattern, and they actually end up missing out on the trade… or they buy the stock, get anxious because it’s not moving higher… end up selling their shares for breakeven, only to watch the stock go higher a few days later.
For example, here’s a look at the continuation pattern that Sheri spotted to lock in that winner.
This is the 30-minute chart on Atossa Genetics (ATOS).
As you can see in the chart above… ATOS had a strong move higher… then pulled back a bit.
Well, traders who don’t know about this continuation pattern (this is known as the bull flag continuation pattern).
When we see this pattern, we actually know exactly when and where to buy the stock and stop out.
Well, shortly after Sheri got in, she sold early (which was a great choice because the stock ended up filling that gap up).
This is the same pattern that I teach to clients… and I’m not a stranger to taking profits using this pattern too.
A Few Examples on How to Spot This Winning Pattern
For example, I used the continuation pattern on a momentum stock – Eltek (ELTK).
Check out this 15-minute chart on ELTK.
Again, you’ll notice the same pattern here. The stock was hot… and it had a strong move higher… and started to trade in range and consolidate. Basically, after the stock has a runup… we’re looking for it to trade between two levels before it breaks out and runs higher.
In other words, it was forming the bull pennant / flag. Well, once I saw this price action… I knew it was time to get in, and let clients know about the setup.
Well, just over an hour and a half later… ELTK actually got to my target, breaking above $11.
It’s the same idea as the ATOS trade. Spot the pattern… get into the trade, set a stop and have a target in mind. Once it breaks out and gets to your target, take profits.
(Think alerts to chart patterns can help you spot winners like these? Click here to find out how you can get them delivered to your inbox.)
Now, let’s see if you can spot the continuation pattern on this 30-minute chart in Vuzix Corp. (VUZI).
Remember, we’re looking for a move higher… followed by a small pullback or consolidation.
If you look at the rectangular area, that’s the price action we’re looking for with the continuation pattern… and I even sent out a watchlist to clients ahead of time to let them know this stock should be on their radar.
Now, I actually missed this first breakout… however, with momentum stocks, I know there could be another continuation pattern.
Check out the chart again just a day after that continuation pattern breakout.
Another continuation pattern was forming… and I wasn’t going to miss out on this one… and I let clients know I was getting into the stock because of that price action.
I actually have skin in the game with these patterns. I’m not just telling people about them, I put real money behind them.
I bought VUZI right from the watchlist… and the very next day, here’s what happened with VUZI.
The stock got right to my target, and I ended up taking a 20% profit!
(I let clients know what I’m looking to trade beforehand… and I even let them know when I’m getting in and out of a trade. If you think that can take you to the next level, then click here to get started.)
As you can see, if you know what you’re looking for… you can spot these plays too. The continuation pattern is one of the most useful patterns in momentum stocks, and you could pull out winners just like the ones myself and clients found.
Now, I’ve actually made it simpler for traders to spot potential trades… and it’s literally from using one simple line – what I call the Horizon Line.
Nice explanation, techical analysis can help uncover trading opportunities but fundamentals should not be ignored.