The Buy Setup-A real case study

Alast week’s,I put up a simple buying strategy that can use to help to time trading entries and at the same time increase the likelihood of successfully trading the markets.

The setup only involves three steps. Two steps are for the setup and the third step involves the buy action trigger.

First – Look for a recent new high price.

Second – Look for three or more consecutive lower highs.

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

Let’s take a look at a real example: The chart above is a daily chart of Continental Airlines [CAL]. On October 12th, after making a new high , the stock then pulls back for three days in a row. Each high is lower than the previous high (the second thing that we look for). But notice that the third lower high isn’t the same candle stick color as the previous two highs. That brings the question, “Does the color of the candlestick matter?” Absolutely not! All we are concerned with are the high prices; we aren’t concerned with the stock’s opening and closing prices.

Now that we have three down days we draw in or mentally make note of the third day’s high price and we set up the trade to buy one tick above this high price (our final step). In this case the stock closed at $30.83 but the price trigger was $31.29.

The next day the stock did move above the third day’s high price and the trigger price was hit and a beautiful little rally followed.

That's indeed a good trading