zeroinverst asked 4 months ago
Hello,
I have a couple of questions that I would appreciate answers to.
1, On which timeframe is the best time to enter?
2, Should the stop be directly below the breakout line or should it be slightly below in case there is a retest of the breakout?
3, When we talk good volume, should it be above 20 SMA (volume) to be a good volume?
Thank,
Patrick L
Owen Staff answered 4 months ago
When evaluating the best time to enter a trade, it’s essential to consider multiple timeframes. A practical approach is to use weekly charts on the left and daily charts on the right to assess the bigger picture. This method, inspired by William O'Neil, helps identify clean and simple setups. During the day, however, focus on the daily charts to track stocks approaching key levels. If a stock is nearing a breakout point, then analyze it further using hourly or 30-minute charts, and in the early morning, even the 10-minute chart. Importantly, avoid using 5-minute charts as they may lead to overtrading. A strong volume surge accompanying a breakout is a vital confirmation that other investors are buying; if the volume is lacking, it’s better to refrain from entering.
When setting alerts for potential breakouts, it’s crucial to set them slightly below the breakout price, usually 20 to 30 cents early. This gives you enough time to assess the situation calmly and avoid being rushed into a decision. Once a breakout occurs, give the stock some room to breathe instead of placing stops too tightly below the breakout line. If the breakout fails, selling a portion, like 20-30%, can help mitigate losses while allowing you to retain some position in case the stock recovers. The best stocks typically break out and continue to rise without looking back, so watching for sustained volume is key.
Good volume is crucial for confirming a breakout, but it’s not always about the 20-day moving average, especially early in the day. Instead, look for a significant increase in volume compared to previous bars across different timeframes, such as hourly, 30-minute, or even 10-minute charts. If volume is picking up noticeably, it’s a strong signal that the breakout is genuine. However, if there’s no significant volume, it’s a sign that the move may lack strength, and it’s better to hold off on buying.
The underlying principle is that volume confirms the market’s belief in the breakout. No volume means no buy. By being diligent, patient, and disciplined in analyzing charts across different timeframes, and by setting alerts wisely, you can improve the likelihood of successful trades while minimizing risk.
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