[davidjohnhall]

Originally Posted by Arthur »

Can you help with the methods and ways with which I can know how to read and understand the charts.

Hi Arthur,

The two charts represent the result of two types of trades. To understand the charts you would have to go back to what the initial set ups are, and what a trader would be looking for at the time of initiating a trade.

For instance, a trend follower is looking for new highs as an entry to the trade. If a stock breaks out to new highs the trend follower believes it has cleared resistance and will run in the direction of the breakout for some time.

Here's a breakout trade I took that resulted in a very nice trend:



Now that is a nice trend. Over 150% from the breakout in a few months. And I caught a good chunk of it, but alas, for reasons that I am sure need work I closed early and left with about a 70% gain...only half.

Now, let's take this trade back to the beginning to see how you "read it". As I said, breakout traders are only looking for one thing -- a break to new highs.



Here's the initial break. It definitely doesn't look as fun from this angle, and looks pretty terrifying. LOL. This is where the trend traders and counter trend traders do battle.

See, if you are a breakout trend trader you are thinking: here comes a new high, time to get ready to take a position.

If you are a counter trend trader you are thinking: here comes a new high breakout -- that is bound to fail. Time to get ready to short it.

Here's a super close up:



One small clue is the rise in volume...that tells me the breakout might work as volume is the fuel that makes breakouts fly. When it comes to these, I like to see the charts that I have coined "sneakouts"...which are quiet breakouts that are flying under the radar. There isn't a huge breakout, it just kind of tip toes out the door -- and then runs!

Now, once price has broken out you want to look for new highs -- that's your confirmation...like this:



And up and up you go. Of course you've got to keep your nerve and sometimes I can FAIL in this department. LOL But trading's a learning process and the more I focus and more I specialize and get to know my method, the better I become.

Now, to look at a breakout that straight out fails.



Here you see UCBI make a strong breakout, on good volume and then...just...die.

This is why -- when breakouts fail -- it's time to bail!

My rule of thumb is if it closes below the breakout zone you got faked out -- so close out and move on to the next. This will happen at least 50% of the time when you are trading breakouts.

Here the counter trend traders caught a really nice trade. they were thinking: breakout, yeah right. This is going to fail and they sold into it...and they were right. Good for them. That's how this game is played.

Hope that helps!

David John Hall