T2W Trading Community

Dynamic Materials (BOOM)

Sometimes, breakouts can happen so quickly that traders need to wait for the move to exhale a bit. In the case of Dynamic Materials, the stock gapped up from the mid-3's to over 17 in November 2004. There was very little time to catch that move. However, once the stock flagged and then began to break out again in February -- and surpassed the previous rally high prior to the consolidation (i.e., the top of the flag pole) at around 16 -- the pattern was screaming, "Buy!"

We actually didn't spot BOOM until the next flag in the 30 zone, where we traded it twice for two quick 20% trades. We bought on a consolidation to a split-adjusted 31.75 on March 13 sold on the breakout to 37.60 on March 22. We bought again on the pullback at 30.80 on March 30 and sold on the huge breakout to 36.50 the next day. In both instances, the moves appeared to be too much too quick and due for a breather, which they indeed took.

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Forward Industries (FORD)

Forward Industries is another example where the top of the flag pole (see the early 2005 up-bar) is clearly illustrated. Traders who tracked the stock after its initial thrust above 8, and who waited until it confirmed the next upmove by breaking through 8 again, were well rewarded, as the stock went on to triple from there. We caught the stock as it flagged at around 15.05 on May 4 and rode it for nearly 5 points to 19.88 on May 20, when it appeared to be getting a little too far above its moving averages.

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These four examples illustrate winning chart patterns. Longer-term traders could have ridden each of these up for substantial gains by merely setting stops slightly below the moving averages. Shorter-term traders could have identified, as we did, flags along the way on each of these charts to take advantage of pauses before the next up move in these orderly patterns.