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 Breakout
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.
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.
Xybernaut Corp (NASDAQ: XYBR)
This is a good example of how a breakout should perform.
I have been watching this stock for the last couple of weeks.
XYBR has been in a congestion range for weeks.
Today, XYBR broke above its 52 week high of 18 � at 1:00 PM today and never
looked back.
I feel this new move will continue.
Although the ideal entry would have been at 18 � today, I would Buy XYBR here.
I would place a stop at 20 �.
