RIMM (Research In Motion, Ltd) continued it’s run today. I got a late start, but when I switched on my screen, the chart below was staring at me.
These are the trading set-ups you live for. The first bar is a large green candle on huge volume, and then you have a series of bars that consolidate on declining volume. Look at the volume pattern at the bottom of the chart, that is EXACTLY how you want it to look on a consolidation from a large green stick. The consolidation pattern is not a bull flag, but more like a pennant (though not exactly). But it has a number of positives going for it. First is the volume dry up, but next you have two progressive inside bars on five and six, and six is a NR7 (narrow range seven) bar. This is a recipe for an entry. I placed a buy stop $0.02 above the high of the sixth bar at $60.34, and a stop-loss $0.02 below the bar at $60.08, for an “R” factor of $0.26. This trade does have an added risk in that you are going long below the ORL, so have to watch that level for a potential reversal.
In order to set a target, I used a Fib extension. This is calculated by taking the low of the previous day to the high of the OR, and then extending it to the Fib level of 38%. That give a target of $62.33 or a potential 8R profit.
My buy order was filled on the next bar and price began to move up, with the 5MA providing support. On an extended move up like this with no obvious resistance points near, unless the candle is breaking an established support level, you want to wait until the candle has completely formed to see if the 5MA holds, which it continued to do as price moved up. When price came in on the 23rd bar, as the day was getting late, and it looked like the Fib target was out of reach, I closed the position for about a 6R gain.
