The Buy Setup

Along our trading journey, we often want to buy a stock because we don’t want to miss out on the next big move and suddenly the next day we watch in horror as it gapped down and then fear sets in.

The Buy Setup strategy I was taught by a professional trader look as follow:-

First – Look for a new high price. We start by looking at a a stock that has hit a new high, not necessarily a new 52-week high, but has recently rallied higher breaking above recent previous highs. A general guideline to consider is that the stock should have made a new high no longer than eight trading periods ago.

Second – Look for three or more consecutive lower highs. This step calls for stocks to drop at least three days in a row with three lower highs. The high of each down day must be lower than the previous day’s high.

Third – We buy the stock when it trades one tick above the previous day’s high price.

The chart below shown an example of what the Buy Setup looks like.


This is a little useful trading entry technique that can use along with other technical indicators.