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 support area.
When a stock is in a defined trend, the channel will continue to step up or
down, depending on the trend.
Let’s look at XOMA Ltd. (NASDAQ: XOMA).
Despite the market poor showing XOMA continues to exhibit a continual
pattern of basing, then breaking out. It will base, and then break out
again.
It is this pattern that we look for regardless of the price of the stock.
I am sure many thought there would have been a bottom in INTC, CSCO, and AMT
long before now.
Stay with stocks in uptrends and Buy high, Sell even higher. You do not get
any more credit for picking a bottom on a stock that rises 10 points than
you do picking a stock that is soaring, that still moves up 10 points.
The ideal Buy would have been Friday, however a buy here with a stop at 13 �
could be appropriate.
If you are not shorting stocks, you must look for the winners. The trend in
the overall market is down.
Let the market tell you the direction. This method can be used with other
stocks at any prices.
