When the stock market trades in well-defined ranges, either horizontal or at a slight upward or downward trend, it makes for great trade opportunities.
These trading channels provide clear lines in the sand to know when you’re wrong… and right.
Today we take a look at the recent move higher for the S&P 500 ETF (SPY). As we approach the top of the rising trading channel, you might say we’re likely meet resistance. But given that the stock market has shrugged off every bit of bearish news this past week, that’s likely not to be the case.
If we only enter in the direction of the trend (in this case to the long side as opposed to selling or fading highs) that gives a much higher probability of success.
Best risk / reward scenario: Buying the touches of the lower channel is the lowest risk entry point because the stop can be placed just below the channel low (the low of the candle makes a great stop as well).
Breakout scenario: Given that we are at the top of the channel, and the market is poised for a breakout, buying above the high of the prior day’s candle is the best shot at getting into another steady trend day.
After the stock market goes straight up with multiple big body trend days, be on the lookout for a sharp decline back to the bottom of the channel. As the saying goes, “the trend is your friend until the end.”
The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.