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If you were paying attention to the deteriorating economic headlines, you might not have noticed a bright spot among the bearish headlines.
Apple (AAPL) shares broke this week to new lifetime highs after giving a “triangle” breakout buy signal on the Daily Chart with a supportive structure from the higher timeframes.
Let’s take a look at the Three Timeframes in Apple (AAPL) and learn a few strategies along the way:
When looking to trade a stock on a chart basis, it’s often best to start with the ‘bigger picture’ monthly chart, mainly to asses the dominant trend and any obvious prior support/resistance (price) levels.
Without getting too technical (yet), Apple remains in a powerful, month-over-month uptrend and each minor pullback (down months) set-up a buying opportunity on the break above price resistance.
Price is overextended from its rising 20 month EMA, but this structure is common in powerful stocks and should NOT be a reason to fade (short) an overextended stocks – stocks become overextended for a reason and it’s usually best not to fight that reason.
With the monthly structure above, let’s fine-tune the chart by viewing the current weekly chart – with lessons:
The first principle of price behavior is that “Trends – once established – have greater odds of continuity than of reversal.” Apple is one of the many examples that demonstrate this foundational principle.
Simple Strategy #1: Do NOT fight (fade) Trends
New and developing traders do best using Pro-Trend strategies, such as buying retracements to rising support (EMAs or Trendlines).
Other developing traders – and professionals – like to buy breakouts from prior resistance or consolidation patterns (like rectangles or triangles).
We can see in the Weekly Chart how this works. Retracement strategies generally trigger a buy-signal as price pulls back (retraces) either to a rising moving average or hand-drawn trendline.
Traders place and trail a stop under the EMA or trendline and hold firm until price forms a sell-signal at a higher price, such as a break of a rising trendline or reversal candle that ‘pokes’ through the upper Bollinger Band.
Breakout strategies require a bit more confidence, as a trader seeks to buy shares (or add to positions) on a price breakthrough above a prior resistance area.
Traders place stops under the breakout price (not too close) and similarly hold for a sell-signal above.
You can see the entries/triggers of both strategies as seen best on the weekly chart (this works for swing traders).
Let’s now step into the Daily Chart for a clearer picture of what just happened and how we got there:
I added “Buy” labels for both of the recent daily chart breakouts:
The first triggered in early July on a break from a “Falling Rectangle” or “Bull Flag” pattern (weekly) and the second triggered recently in September on a breakthrough above the Triangle pattern above. For late-comers, Apple also triggered a breakout buy signal above $400.
Notice how the recent Triangle on the daily chart corresponded with a simple retracement to the rising 20 week EMA on the weekly chart – thus the recent retracement to the $360 level was a retracement buy signal on the Weekly Chart which was confirmed as a breakout buy signal on the Daily Chart (triangle).
By combining timeframes like this, you can spot a potential signal on a higher frame and then confirm it – or fine-tune entry – with a lower frame. It takes a bit more work to find these opportunities, but they’re often worth it (allowing for a better entry and tighter stop).
While there’s more you can learn as educational examples from the charts above, I wanted to focus on the lessons for breakout and retracement strategies in a powerful trending stock, along with the importance of combining timeframes to fine-tune the chart picture.
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