The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
Channel Breakouts
Channel Breakouts are a popular method of trading stocks. The principal
behind a Channel Breakout is that when a stock trades above the highest
price or below the lowest price in the last N (number of periods) number of
periods, a new trend may be starting to take place.
This channel trading method can be used in any number of periods from
minute bars to weekly time frames.
I like to use the 20 period as my N periods.
The results of using such a method will often result in a stock moving
above a defined resistance or below a defined support area.
I feel that with any pattern, indicator, or strategy, the key is to
recognize when it works and when it doesn’t. A pattern or indicator tested
over a long period of time may only have a 50-50 chance of working out in a
trader’s favor. A key to successful trading is to limit losses with stops
and recognize when the pattern or indicator did not perform as expected.
Let’s look at Amgen Inc. (NASDAQ: AMGN).
AMGN has a pattern that many stocks are now forming in different stages.
From January 27 through late afternoon yesterday, January 31, AMGN was in
a channel between 59 1/8 and 61 �.
A stock that is forming a congestion base, usually breaks from the base
either up or down and a new trend may begin.
Late yesterday afternoon at 3:00 PM EST, AMGEN broke out of this base and
started moving up.
Today, February 1, 2000, AMGN gained another 1 5/8 points.
I feel that there is potential for AMGN to move even higher.
The current pattern adds a base of today’s low as new support.
I would still Buy AMGN here on any flat open tomorrow.
I would place my stop at 62 �.
