In this article we will discuss some frequently asked questions (FAQ), but also some general advice on technical trading.
The “Technical Breakout Setups” section in the analyzer will find stocks in a strong uptrend which are in a consolidation period. They are found by combing the ChartMill Technical Rating and the ChartMill Setup Quality Rating. These ratings and the concepts behind these setups are described in 2 documentation entries:
But, even if these setups implement well known technical trading concepts, there is never any guarantee that the individual selection will actually be a winner. As a trader, there are many things which you should take into account and it is very important to understand that ChartMill does not magically present you some stocks which are certain to start rising after you buy them and allow you to just sit back and relax. The following items are important to understand:
We can elaborate a bit more on the last point because the next question is: “so how do I know we have a market which supports breakouts?“. The following points can help you determine whether the market conditions are good or bad:
To summarize: the point made here is that ChartMill is a tool which helps you find breakout setups, but an important task is still with the individual traders. You should be aware of market conditions and develop a method for determining when market conditions are right and always make sure you use good money management.
These can’t fail right?
Of course they can fail and all of the points made above are still valid here!
But the point to be made here is that a 10/10 is a very rare and exceptional beast. The reason for this is that TA score and Setup score are somewhat contradictory to each other. When evaluating the TA score we also evaluate the short term trend and when the short term also shows a rising trend, the stock is extended from a setup point of view. (You do not want to jump into a stock which has just risen many percentages, reversal could be around the corner at any point).
The setup score looks for a consolidation, so a high setup score implies a lower score for short term trend in the TA score. In short: perfect setups will have a high TA score (above 7) which implies a strong rising overall long term trend, but a consolidation in the last days or weeks.
The analyzer trading setups always have an entry price above the current price. That looks stupid right? Why would you pay 51 tomorrow for something which you can buy for 50 today?
The suggested order type here is a BUY STOP order. While a stop loss (or SELL STOP) order will only execute when your stock drops below a certain number, the BUY STOP will only execute when your stock rises above a certain level.
The idea here is that you only want to buy the stock when it actually starts to rise and when it arrives above the breakout level. It is very well possible that the stock never reaches this level. It is also possible that the stock only reaches this level next week. Both cases make sure you only enter the stock when the actual breakout happens. If it doesn’t happen you have prevented a loss by never entering the stock.
Important notes here are:
In short: our intend/suggestion is to adjust your stop price in a trailing way after the entry. We don’t know whether the breakout will stop at a certain level or after a certain amount of days or weeks. Any individual selection could just start to reverse 2 days after and still give you a loss or it could sit in your portfolio for many months and be the biggest winner of your trading career so far.
Whether or not to use a target, where to put your stops and when to move them are all elements of a personal trading strategy which will be different for every individual and is often the result of learning and experience. For searching traders (aren’t we all?) we have these articles about possible stop strategies:
We strongly advice taking the time to read these articles on Money Management: