For the past few weeks we have spent time walking through stocks that were ready to break out of ranges. Thanks to the strength in the overall markets those breakouts worked as planned. Today we will continue to focus in on this strategy but with a little twist.
Taking a look at American Airlines
When ranges are wider it can present more opportunity as well. See, in tight ranges we can just bet on the breakout and place stop losses under the lower point of the range. Buying American Airlines at the breakout point of $54.50 and placing a stop under $43 is either taking too much risk and not being able to make the risk to reward pay off.
In cases like this where there is a larger range we take the two entry approach. We will have two entry points. The which happens first will be up to the stock price movement. Since we don't know what will happen let's pretend the stock falls first. In this case there is support around the $49 area. Since we wont know if it is going to breakout we will assume a position with only half the risk at this point.
As the stock moves higher and hopefully breaks out we will look to add the additional half of our position and raise our stop to the next support area at that point. This will allow us to participate in a breakout before it even happens. And now you know how to enter a potential breakout with a larger than normal range.
