There are a few things I look for in what I consider a great trade setup:
1. The stock is in a stage 2 uptend
2. The stock is showing increasing tightness as we progress from the left side of the base to the right side
3. There is a clear that coincides with a major moving average
4. There is a shakeout below support
5. The distance between resistance (where I look to enter) and exit (below support) is tight.
There are more things to consider (are the fundamentals strong, how is the industry group performing, is the market as a whole doing well) but for the sake of this post, we'll just focus on these technical aspects. The other considerations are all present here as well, which is why it was on the radar to begin with.
VMW initially broke out on 4/25. was so-so and it took a few days for to finally show up but it did today. The RS line continues to make new highs and is a sign that VMW is outperforming the market.
The distance between my entry 94.50 and stop at 90.50 is only 4.23%
I never like to risk more than about 6 or 7% on any given trade. Trades like this where I only need to risk 4% are great because I can leverage my position size while still risking the same amount.
I wrote a blog post about position sizing. Check it out here: https://chartyourtrade.com/how-to-use-th...
Let me know what you think about this idea in the comments. Do you agree, disagree, see something else that wasn't discussed here? Did you find this useful?