One of the main types of short-term trade setups that is part of our proven swing trading strategy is to buy Potential Breakouts above valid bases of consolidation, in stocks exhibiting relative strength in the broad market. Recently, we did so with a swing trade in Onyx Pharmaceuticals ($ONXX), which enabled us to score a 10% gain on the price of the stock over just a 3-day holding period. In this educational trading strategy post, we visually walk you through the technical trade setup that led to the winning result.
ONXX initially came onto our radar screen as a potential swing trade buy entry because it met the basic technical filtering criteria used by our “turn key” stock screener for Potential Breakout setups. These pre-programmed rules for automated filtering include:
Because all the predefined rules for a Potential Breakout setup were met, ONXX was showing up on our technical stock screener as a possible buy candidate. At that point, we merely needed to wait for the price action within the base to tighten up, and form a buyable “handle,” which subsequently occurred between September 7-14. The technical setup of the trade is annotated on the chart below, which is what subscribers of our Wagner Daily newsletter were alerted to the day before we bought ONXX:
As shown on the chart below, ONXX triggered our swing trade buy entry one day later, on September 17. Our initial buy entry into the trade was just after the market opened (above the previous day’s high), and then we added additional shares to the swing trade when ONXX broke out above the high of its “handle” (the horizontal dotted line). Notice that volume also surged well above its 50-day average level, confirming the breakout to a new high:
In this third and final chart, you can see how swiftly ONXX zoomed to another fresh 52-week high. Because the move happened so quickly, we made a judgment call to sell into strength on September 19, locking in a solid 10% average gain at the $85.45 level, just before the stock entered into another base of consolidation:
When buying breakouts, we typically manage the exit in one of two ways. If the move is sharp and happens very quickly, we sometimes sell into strength and lock in a quick gain of 10 to 12% with a holding time of just a few days. This is how we managed the ONXX trade. However, when a stock is acting very well and climbing steadily higher, we often choose to sit through the first pullback or short-term price consolidation instead, which enables us to capture a 20 to 30% gain with a longer holding period that averages around 2 to 3 weeks.
In our swing trading newsletter, we typically inform subscribers whether we are planning to sell the winning trades into strength of the first move up (often with a predefined price target), or if we were planning to hold through a pullback in anticipation of capturing a larger gain. If you are not yet a subscriber of The Wagner Daily, and would like to receive our exact, preset entry and exit prices for profiting from the best stocks and ETFs, sign up for your 30 day risk-free subscription to our top-ranked stock picking newsletter at MorpheusTrading.com.
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