Big Bull Flag Patterns in Massive Uptrends
In the last blog post, we talked about how large bull flag patterns are becoming the trading setup of choice in the current market.
MDGL is a good example of this. We caught MDGL breaking out of a large bull flag pattern on a catalyst a week and a half ago before a 50% move within 24 hours. We mentioned it on stocktwits as it was breaking out and talked about it months earlier in the Daily Alert.
It soared 50% higher from the technical entry point in the bull flag within a day. Its one of the more exciting speculative biotechs in the current market.
SEDG is a higher quality stock we featured in the Daily Alert breaking out of a bull flag before a 25% run within a few days earlier in May.
I also mentioned that MDGL looked ready for a pullback or consolidation in the last blog post.
However, the next day it closed strongly to form a 2nd bull flag pattern – a type not well understood that is explained more in our next release of our master trader video training series.
After it formed the 2nd bull flag pattern, we mentioned that MDGL could quickly run to $300 or beyond if it broke the $280 resistance in the Weekly Alert that evening.
The next day, last Tuesday, MDGL broke out of the 2nd bull flag pattern and raced $55 within 24 hours. 15% from the 2nd entry point in less than a day.
Normally we focus on stocks breaking out of a well-formed consolidation well below the highs. However, breakouts work really well when we follow this principle.
When momentum trading, buy stocks with a LOT of momentum on a breakout after a well-formed consolidation.
Most breakouts are followed-up by a pullback. Usually because the stock just does not have the rapidly improving fundamentals to support a higher price. Often these stocks are under $10 or were recently.
Pump and dump is rampant among stocks under $10. And most fund managers will not buy stocks under $10 or $5. It often defies the fund rules.
These rules are obviously not arbitrary. Most stocks under $10 are under $10 for a reason and they have a lower probability of trending higher over time.
The reason we care whether fund managers can buy our stock is because they tend to buy and hold. They also tend to accumulate shares over time, setting up more reliable technical entry points.
If a lot of funds are accumulating a stock, the price will be forced higher as their immense buying power will take out all the sellers at a lower price level. We want to trade stocks that large fund managers are buying up. Its an indicator of upside potential and lets us know its not just pump and dump.
Stocks over $10 generally have a more respected management team, are trusted more, the executive team has a clean background and the business has better performance over time. That is precisely why the stock is trading over $10.
So the first step to finding a great trend trading setup and bull flag pattern is to look for stocks around $10 or higher. Sometimes much higher as was the case with MDGL. Less than $10 and the performance of the breakout is more risky and less reliable.