R O S S C A M E R O N
68
Chart of Flat Top Breakout Pattern. This
Á
at top breakout took only a few
minutes to form and did not have time to pull back to the moving average.
Flat Top Breakouts (ascending wedge)
We will start with my favorite pattern, the
Á
at top breakout. I love
Á
at top breakouts because
they are extremely bullish and leave little room for guessing the proper breakout spot. A
Á
at top
breakout can occur on any time frame, but they are typically the strongest on the
À
ve minute
chart. A
Á
at top breakout pattern requires a stock to have made a strong move up in the last
few hours, typically 4% or more. After the strong move, instead
of pulling back or selling off,
H O W T O D A Y T R A D E
69
the stock trades sideways just below a resistance level. The period of consolidation while the
Á
at
top is forming can be as short as three to
À
ve minutes, or as long as several hours. The best
Á
at
top breakout patterns will be consolidating below a whole dollar or a half dollar level. We know
stocks often
À
nd resistance around these price levels, so consolidation in that area is ideal. It is
important that during the period of consolidation, the stock continues to make slightly higher
lows, without it making higher highs. This forms an ascending support level.
When I enter a
Á
at
top breakout pattern, my stop is just below the ascending support trend line. When the price
À
nally breaks over the resistance point, we expect an immediate surge in volume. The volume
spike con
À
rms that thousands of other traders were watching the pattern and waiting for the
breakout before buying their shares. It is not uncommon for the price to retest the breakout
price shortly after the breakout. This is a retest of that level previous support level.
If the level
holds, prior resistance has become support and we should see a continued rally.
If a
Á
at top breakout setup is forming, I will quickly look at the daily chart to see if we have any
windows or triggers nearby. If a
Á
at top breakout has been consolidating for several hours, it is
unlikely I will see it on my stock scanners. This is because it will not be hitting high of day. I would
typically only notice these long consolidation setups if I was already watching the stock, because
it had high relative volume. Remember that
Á
at top breakout patterns
should only be traded on
stocks with high relative volume. When I am trading
Á
at top breakouts, I typically buy right at
the apex point. The apex point is the highest price of the
Á
at top and is the resistance price. This
price, to the penny, is the breakout price. When the price breaks that level, we expect a quick
surge of buying and short covering. I watch the Level2 as the stock
approaches the breakout
price with my order, ready to buy just before the break. If I start to see a surge in buying volume
passing through the time and sales, and I see seller’s sitting on the Ask and getting bought up, I
will jump in with a half sized order. Buying a
Á
at top breakout means buying a stock at the high
of day.
This is a bit risky, which is why I start with half size. My stop will be the ascending support
line at the bottom of the wedge. If the stock fails to breakout on the
À
rst try, I will hold unless
my stop gets taken out. If the stock succeeds to break over the
Á
at top, but then immediately
drops back down below the breakout price, I will sell for a loss before my stop has been touched.
If the
stock surges up, I will sell half my position once I have achieved a pro
À
t equal to my risk.
I then adjust my stop to breakeven and hold the remaining position until I get stopped out by
an exit indicator.
If I am con
À
dent in the breakout, I may add to my position during the
À
rst or second pullback
after the breakout has taken place. Any traders who missed the initial breakout will use the
À
rst
and second pullbacks as their buying opportunities. This is why the
À
rst and second pullbacks are
often brought up on strong momentum stocks that are breaking out.
If I have already sold half
my position for a pro
À
t, I will add back the shares I sold at the breakout point of the pullback. I
will then adjust my stop to the low of the pullback which will leave me with a pro
À
table trade,
even if I get stopped out. The
À
rst and second pullback will take place on the one minute chart,
and can take the form of a bull
Á
ag or a even a
Á
at top breakout. It is possible to be trading a
Á
at
top breakout on the
À
ve minute chart, and also trade a bull
Á
ag or
Á
at top breakout on the
one minute chart.
