"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Monday, December 10, 2012

BAC: Why I Bought this Breakout

Readers of this blog know that I do not trade breakouts very often. I rather like to wait for consolidation before pulling the trigger. In any case, some breakouts look too good to be ignored.

Last week's price action of Bank of America (BAC) has been one of these examples. The chart below summarizes the factors I'm looking for: it is not only the breakout itself, but also relative price action of the stock and underlying sector. I want to see relative momentum prior to the move and very clean price patterns. Still, I'm playing it low risk: I take half the final position on the breakout and add on a potential consolidation. Since most breakouts fail, caution is warranted and smart money management is key.

Disclosure: Covestor Model is long BAC