One of the common trade setups is the Breakout trade. One of the scans that I do each week has to do with looking for stocks that are within 3% of a 52-week high. I have another scan that looks for stocks that are 30% above the 200 SMA (simple moving average). Both of these scans give me numerous stock charts that have a nice breakout potential forming.
For an example of a stock setting up to breakout, I bring you the Daily chart of $FEIC:
The $65 level has been attacked numerous times and is once again a brick wall to get through — and stay above. In order to do a trade here, one could be anticipatory by doing the following:
- Go long the stock here at $63.70
- Set a stop that is 2% below the 50 SMA (has taken a few peeks below it in 2013 so give it some room, avoid being shaken out). You could pick $62 as a good spot
- You could also just buy some May Puts but I would not suggest that here (horrible volume and spreads too wide)
- If more patient, you could wait for a 50 SMA test & play the reaction to that