The market remains predominantly bullish, and we have considered potential bullish trade more than a few times in our Group Coaching class. One setup I continue to love is the 2-bar bullish break from a bullish base.
When a Bullish Base is Created?
A bullish base is created when a stock moves considerably higher usually over a short period of time and then begins to trade sideways. If the stock does not pull back more than two-thirds of the move higher, it is considered a bullish base. The 2-bar close is two consecutive bullish closes in a row, with the first bar closing above the resistance level of the base and the second closing above the first candle’s high. This works on all time frames. Of course, the bigger the time frame the bigger the expected move higher.
Take a look at this recent example of Dominion Energy Inc. (D).
The stock has moved higher since the beginning of February and has maintained a fairly bullish base after testing the $77 level. That area acted as resistance in the past and is doing so currently. Although the stock has been on a bullish watchlist, it has never had the 2-bar close (2 consecutive bullish closes) trigger. So in this case, it is still a waiting game.
Determining what a bullish base is can be fairly easy if you know what to look for and consider. Just because it is a bullish base does not mean it will eventually move higher. Being patient and waiting for the 2-bar trigger can immensely improve your odds. As traders we always want to put the odds on our side, and for me that would be a break above the resistance level of the base.
Senior Options Instructor
Market Taker Mentoring, Inc.