Pop quiz. Which should good trading be more like, skydiving or laying in a hammock on a warm summer day?
Hah….I got you, it’s a trick question. Good trading should neither be an adrenaline rush nor relaxing. It should be like washing your hair, a repeatable methodology that is effective but boring. Lather, rinse, repeat.
BORING SET-UPS CAN TURN OUT BIG WINS
A couple weeks back I wrote about a setup in Morgan Stanley, which is now up almost 17%. The stock had moved out of its downtrend, re-captured some short term moving averages, and began to base in a progressively narrower range right below resistance. It was a boring, unexciting pattern, but one that had a lot of positives going for it, which increased the probabilities of success.
LET’S DO IT AGAIN
Chesapeake Energy is now forming a similar pattern. It has moved out of a 13-month down channel, recaptured some short term moving averages, and is basing under resistance in a narrowing range. Lather, rinse, repeat.
CONFIRMATION
As an added bonus, the 200-day moving average (MA) has lined up exactly with this resistance level. If price can break through both with some good volume, CHK could explode to the upside.
GETTING IN
A buy point would be above the 200-day MA at about $20.60 with a stop back in the base at $19.60 for a risk of one dollar. A reasonable target would be the top of the recent channel around $25.50 for a 1:5 risk/reward ratio.
For more trading ideas, read our daily Markets section here.
