We had a nice evening session exchanging tickers and charts.  Sloper, Bleak, mentioned this name.  Because it is such a beautiful example of how one can combine Volume@Price bars to find some moves with exciting potential, I wanted to do a brief post about it.

Here's the chart (data is a couple of days old):

 As you can see, the intersection of volume@price (bars on the left hand side of the chart) combined with chronological volume (bars on the bottom of the chart) AND a beautifully forming basing pattern, resulted in an explosive move upward (the equivalent of the stock chart's stars coming into perfect alignment!). 

Another tool for managing these moves is the %B.  1 is the top of the Bollinger Band; -1 is the bottom of the band. Here's a chart with the %B included as an overlay behind price.

Any +/- move beyond 1 means that the standard deviations is exceeding 2 (on exponentially weighted price data).  Accordingly, such moves, by definition,  are unsustainable.  Therefore, there are a couple of things to mindful of:

• Thing 1:  if you are already in this move (and these ARE worth your time to ferret out), then you simply MUST sell systematically a portion of your position into the rocketship launch if the %B is over 1 because such moves cannot be sustained.  I typically sell 1/2 of my position in 3 tranches into such moves.  Why?   I have already entered into a full position when I see such set ups.  Regrettably this was not a chart that I had found! If you are reluctant to sell, simply remember that by the nature of the extension of the price OUTSIDE the Bollinger Band, the probability of a pullback is quite high.  Accordingly, you can lock in some profits (and you still have a portion of your position if this is a 'gap 'n go' and re-enter at lower price when it pulls back.  Look for support at your preferred moving average time frame.Even when it pulls back, it will need more sustained volume coming in to propel it forward.  If there is no follow through over the next several days, then it might be a fizzled move.

• Thing 2:  DO NOT BUY stocks that are in this price level. (I say this to newer traders)  Buying this stock here at this price is a very high risk entry.  Employing patience here is required. If it runs, do not chase it.  There are several other set ups in the making.  Go find them! 

The lowest risk entry is the spider entry—you find the chart; you see the volume probes coming in; you establish your entry; and you wait.

A brief word on stop losses for these types of set ups—it is not unusual to see a bit of a shake out before the real move.  This stock had fairly wide range in the days before the move.  If your entry is such that you cannot withstand a whipsaw, size your position so that you can withstand a shakeout of 10-15%.  It is a little easier to have some conviction when there is a chart set up as beautiful as this.  BUT….the reaction was also news oriented:  earnings coupled with a 9% short interest.  That adds both risk/reward and your trade size should be adjusted accordingly.

These charts also work on the flip side.  Stock prices crawling along long volume@price bars means that there are lots of holders invested at that price. As everyone is admonished to use stop losses (and my own theory is that because everyone uses them it increases volatility and key points in the chart), there tends to be clusters around such bars (above for shorts, and below for longs). Powerful moves often result from the igniting of those stop losses.

Thanks Bleak for this beautiful example.