From the October 01, 2011 issue of Futures Magazine • Subscribe!

Capturing breakouts with precise entries

Price levels & entry signals

When a stock is building up to making an explosive move, these three price patterns occur as price moves into trend expansion. During this period, support/resistance levels are created from modest five- to six-day price corrections before building up enough steam to breakout. It is in these moments — whether on the daily, weekly or monthly time frame — where these patterns form and give you the green light to take a position. As momentum carries the stock higher, you have to understand the individual characteristics of each pattern to benefit from them.

The Thrust Breakout is a move above a resistance level in which the daily price action is two to three times the previous 20-day average and whose volume is higher than the preceding trading day. A thrust bar’s price action also will close in the upper third of its price range on the day it breaks through resistance, signaling an entry point in the stock and letting momentum carry your position higher (see "Unexpected thrust").

In simple terms, this type of price bar is a large-range day that occurs on higher-than-previous day volume where price closes nears its daily high. If you see a price bar like this, then you likely are witnessing a large-range day. If you are witnessing it as it trades up through resistance or below support, then you are spotting a Thrust Breakout.

The next price signal is the Breakaway Lap, which occurs when price moves below support or resistance. In a bullish setup, a Breakaway Lap up occurs when prices make a low that is greater than the close of the previous day, but less than the previous day’s high. During a bearish setup, a Breakaway Lap down occurs when price makes a high that is less than the prior day’s close but greater than the prior day’s low.

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