Tuesday, March 29, 2011

Most reliable time of the day to buy break outs...

Once again my review of the best set ups from today have confirmed my suspicion. If you're not long the initial break out from the first half hour of the day or so then break outs in the morning/early afternoon are generally unreliable and failure prone. Example from today was my trade in $OBCI. Bought the break out in this one around 11:30am but it reversed almost immediately and stopped me out. The only mid-morning break out I saw from yesterday that did work was in $LULU but these are few and far between.

Afternoon break outs continue to be by far the most reliable and most likely to lead to a gap/gap and spike the next day. Break outs after 1:00pm do work but they often reverse near the close. So one needs to keep an eye out for this to book profits. Break outs after 2:00pm are in the sweet spot. They are not too early so that you are risking an afternoon reversal. They are not too late because if the stock gradually trends higher from here then you will likely have a good profit cushion to hold over night. This is probably the best zone to buy intra day break outs in stocks that are in play at the moment. Breakouts after 3:00pm can and sometimes are very explosive. Some times these can go parabolic in the last hour! Example from yesterday $CRYP. However, the risk  is that if the stock does not take off then you might not have a good enough profit cushion to hold over night in case the stock gaps down at the open.

So in conclusion if you are under the PDT and looking to take day trades that have the potential to be converted into over night holds then limit your purchases to the afternoon. Try to concentrate most of your buying to between 1:30pm and 2:30pm but of course one has to use discretion! An excellent break out can occur at 1:15pm. So your not going to pass just because its 15 minutes earlier than the sweet spot.

Those are my latest observations. I'm going to try to apply them to my trading. Hope you can to your own.

Good luck and good trading!

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