Today was strong follow through on the breakout, volume was even higher today. This is the kind of bullish confirmation we look for in a breakout and when it is not there, then you have very good reason to be suspicious of the breakout as a false breakout or bull trap.
3C showed a little profit taking into the close, but that is to be expected from a 14% 2-day move. If you are in this trade or if you are not but want to keep it on the radar, I suggest the following method below.
Above is a daily chart of SPRD. I choose this trade because of the triangle pattern you can see in the trendlines, the strong uptrend and the strong breakout. I didn't use this screen in choosing it, but this may be a helpful screen for anyone that likes to use moving average crossovers as buy/sell signals. In the top window in yellow is a 10 day simple moving average in yellow and a 22-day simple moving average in blue. Ignore the red dash line-it is a VWAP and not part of this screen. In the middle window I have a custom formula in yellow and a moving average of the formula in blue, it too is a 22-day moving average. (If you have TeleChart, I can give you the formula, but it is not absolutely essential, it just adds another layer of confirmation. In the bottom window is a Wilder's RSI with a period of 22. A buy signal is given when both yellow lines cross above their moving averages and RSI is above 50 or the center. In this way you are able to avoid many of the false cross over signals that plague moving average trading systems. The green arrows mark buy points.
To enter the trade from here, you simply wait for the first pullback to the 10-day moving average-it can be intraday and you buy there. The first pullback should not go so far as the 22 day moving average so you can use that level as a stop. The second pullback often will be to the 22 day moving average. The idea is to pyramid your winning trades, add to them on pullbacks, but each time you add less shares because the trend is maturing. This is the opposite of the Wolf on Wall Street Cardinal Sin-dollar cost averaging a losing trade.
Another thing to note is the triangle price formation itself, you can see the red trendlines marking it (click on the chart for an expanded view). Whenever you get a breakout before the triangle forms an apex, it is usually very strong. The implied pattern/price target can be measured from rear of the trangle-the highs and lows at $11 and roughly $7.50. The difference=$3.50, simply add $3.50 to the point in which the breakout occurred ($9.75) and you have your target-9.75+3.50=$13.25. It's a rough estimate, but usually pretty reliable.
To confirm any triangle, the volume should decline as the pattern matures, if it doesn't, it's probably a random price formation. Triangles like this are continuation patterns unless they are very big. So the breakout is expected to be to the upside being it is continuing the preceding trend which was up.
Here's today's intraday chart. I warned to be careful as the pattern of another intraday triangle was obvious. An obvious pattern creates a bunch of stop orders just below the triangle. Market makers and specialists love to hit those stops and get shares on the cheap plus whatever volume it creates, they make the spread on it. So we saw a false breakout, but it wasn't anything to be too concerned over, just to know that it was likely to come.
Now that the trade has moved double digits, you want to be on watch for a pullback, which is perfectly normal, but you may want to take profits or reduce exposure, you can always by them back at the 10 day average. The key is to never let a winning trade like this turn into a loser. When in doubt, get in slowly and get out quickly.
Congrats to anyone hitting this one. This is also why I say, put alerts on all the limit order trades, I use TeleChart to do that.
Here's a link to TC. If you subscribe, be sure to email me to get my custom indicators.
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