Keith Kern on His Favorite Setup
- Posted by stedge
- on August 19th, 2011
My favorite setup involves a stock that has been trading sideways for a period of time and has tested resistance many times. I will establish a position as this pattern breaks prior tops when the breakout is accompanied by (and this is most critical) impressive relative volume expansion. I will then trade in and out of these setups as they move higher over time. I will use stops on the way up at prior resistance points which will then act as a new support level. In addition, I use RSI (Relative Strength Indicator) and MACD (Moving Average Convergence/Divergence) to look for positive divergences in these setups as they advance.
Every time when a stock makes a high-volume breakout from a multi-year range, you should pay attention. Something significant has happened and it has changed the supply/demand dynamics. High volume is a in indicator of institutional involvement and most of them don’t start to accumulate positions without doing their homework.
Source: Chapter 5 – Insider Information is Reflected in the Charts by Keith Kern, @stt2318
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