Here’s a box play on the 10-minute charts, with box width of 40 cents. These box plays are unstoppable!
The Setup
Chaparral Steel Company (Nasdaq: CHAP) was up on high volume, but got stuck in a range after making new highs on the daily chart. I was looking for a box play with a breakout on the upside. Instead, I got a box play with a breakout to the downside.
Entry Criteria and Trade
Here’s the chart of the trade:
- I could have picked the previous green bar as the first part of the box play, but I don’t like to start at the top of a wide-range candle. That’s just me. So, I started on the local low about 50.35.
- A local high is formed at 50.75.
- The price didn’t quice make it down to 50.35 again, but since it was about 5 cents off on a 40 cent range, I let it go. Also, I was looking for an upside breakout, which would make a higher low good for me.
- The 50.75 area is hit again. This completes the box. Once the price retraces 25% into the box, a trade will be taken on a breakout.
- We have a nice orderly breakout to the downside. Initial stop is 50.75, and initial target is 49.95, for a 1:1 Ratio. I’d also exit after any serious push back up from extremely round number 50. In fact, it probably makes most sense to set the target at 50.
Target was hit a while later, in a tiny dip below 50 to 49.94. This was a very stress-free trade, as the price didn’t ever retrace back into the box area after the breakdown.
| Stocks Mentioned In This Article | |
|---|---|
| Stock | Links |
| CHAP |  |  |  |
January 30th, 2007 at 11:58 am
Richard,
How many set-ups are you finding per day with this system? Do you just execute 1 trade per day? I was researching something similar to this a few months ago with FOREX.
Brian
January 30th, 2007 at 12:06 pm
Hard to say how many… the last couple weeks I haven’t been in front of my machines during the whole trading day (got a lot of stuff going on over here), so I just take the ones I spot. In addition to the 12345 criteria, I am also looking for an overall context (the ’setup’) that I imagine will give the trade a good chance of succeeding.
In John Carter’s book, he says that he prefers to make this play in currencies, because he thinks they break out cleaner. So, the FX market may be the premier market for this type of move. I think I am on my way to proving that you can find good setups for it in stocks, as well, though.