BDCE Bullish, Day, Continuation, Early Trend
This search identifies stocks that are in a nice trend, have closed higher the last three days and are trading higher now. Read all of the tutorials to get a feel for what you should be looking for, and then view the symbols to find stocks that conform to this set-up.
Option Setup Search Criteria: Trend
- The average daily range has expanded recently.
- The average daily volume is greater than 100,000 shares.
- The stock has three consecutive higher closes.
- The stock has traded higher the last month relative to the last three months.
- The stock is currently trading above yesterday’s close.
This stock has made three consecutive higher closes and it is challenging a short-term resistance level. Today the stock is also trading higher and it is about to breakout above the high set 12 days ago.
The option trade is considered early because it has not confirmed. In some instances the results will show stocks that are up big and have confirmed today. Use caution since a trade above resistance does not constitute a close above resistance. As the end of the day approaches, it will become more apparent if the stock will confirm. This is a nice continuation trade because it is in a very tight, strong up trend.
If we take a closer look, we can clearly see the support and resistance levels. If the stock breaks resistance the stock should be purchased. A protective stop should be placed at the support level and trailed higher if the stock moves up.
These trades are considered Day trades because you will see some candidates that have made very large three-day moves. These stocks may be very attractive “plays”, however they are likely to be “overbought” and extreme caution should be used. The recent momentum will increase your temptation. Trade smaller size in these situations and be ready to exit if the momentum slows. Often a longer-term chart will help you formulate an exit strategy. It will also help you gauge the strength of the move.
This is a weekly chart, and it shows a very nice breakout above a 25-week resistance level. Since the stock is making higher highs a profit target is harder to pin point. In these instances, use a trailing stop equal to 1-½ times its average daily range and take partial profits as the momentum slows.
Within 3 days, your position should be reduced to at least half its original size. Remember, this is a momentum trade, and we are interested in quick results. Consider adding this stock to a longer-term watchlist. A nice pullback to a long-term support level (trendline or moving average) may qualify this stock for a future Bullish/Week/Continuation trade.
Example of a Bad Option Trade Setup
Notice that this stock has also made three consecutive higher closes, and it is also trading above yesterday’s close. It should not be considered a continuation trade because of its recent weakness.
The stock is challenging a resistance level that was left by the gap down seven days ago. It tried to rally into the gap but closed where it opened. The resulting Doji formation indicates a day of buy/sell equilibrium. This stock is not a Continuation candidate. If anything, it might be a candidate for a Bullish/Day/Reversal trade. Gaps usually take a while to “work themselves out” and this stock seems more likely to test its recent low than it does to “fill the gap”.
This is a weekly chart of the stock. The large ranges and gradually sloping trendline suggest volatility and randomness. Four weeks ago, the stock tested a resistance level and it was “beaten back”.
This week, the stock traded below the long-term trend line. This stock should not be considered for any type of bullish trade at this time. Remember, when you are looking for Continuation trades – think nice tight orderly trend.