|After a significant stock market correction (plunge, crash, panic, and so on), it usually takes a while before the fear levels start to abate before the good old-fashioned profit motive that drives every serious trader and investor begins to reassert itself in the market. In the case of MU, the stock has not only traced out a near-textbook-quality triple-bottom pattern on its daily chart, but it has also done so amid the backdrop of a pronounced bullish money flow divergence, one topped off by a MetaStock 11 Raff MarketSpace Stock system (a very solid expert advisor template in MetaStock 11) buy signal occurring after an attempted break higher out of the pink-shaded consolidation zone on the chart. With dozens and dozens of large and even small-cap stocks exhibiting similar patterns all across the market landscape, it would be a major surprise to see the broad market sputter and stall again before marching higher to recover a substantial amount of the losses incurred during spring and summer 2011.|
|FIGURE 1: MU, DAILY. A convincing breakout attempt, a new buy signal, and positive money flow divergence all set the stage for a possible rally in Micron Technology.|
|Graphic provided by: MetaStock.|
|One of the more exciting features of this potential long swing trade setup is the extremely favorable risk-reward ratio (RR) offered here. Assuming a trader sets the initial stop-loss a few ticks below Thursday's breakout buy signal bar and then uses the July 22, 2011, swing high of $8.20 as his/her target price for the trade, the RR comes in at about 2.45-to-1 before commissions and slippage. And even if they would choose to set the stop just below Wednesday's low of $5.82, the RR still comes in at better than 2-to-1. Not bad at all! Just be sure to use some sort of a buy-stop entry above Thursday's high of $6.63, risking no more than 1% to 2% of your account equity on the trade. |
As usual on intelligently managed long swing trades, utilizing a two- to three-bar trailing stop of the daily lows makes a lot of sense -- it gives you an objective way to book profits and/or manage losses even as it lowers your stress level. What could be better than that if you're a serious swing trader?
|Title:||Writer, market consultant|
|Company:||Linear Trading Systems LLC|
|Jacksonville, FL 32217|
|Phone # for sales:||904-239-9564|
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