Quote Originally Posted by adam ali View Post
Mike, is there an approx price level/range here where in your opinion the pattern would be "broken" (to the upside)?
The classic pivot or buy price is ten cents above the following (depends on the base pattern)

Cup with handle: highest point in the handle
Double bottom: highest point in the midpoint of the "W" formation
Flat Base: highest point in the entire base

IBD will tell you not to chase any higher than 5%. In my experience 5% is too far to chase unless the market is moving up briskly, 1% to 2% maybe. Special circumstances like gap ups force you to break this rule. Just keep in mind that if the gap starts to close you can reverse your trade and wait for further developments.

Bounces off of the 50-day should be bought close to the 50-day. I decide in advance whether I can withstand another pull back to the 50-day plus some porosity without getting stopped out. If I think I can, I will make the trade. Pocket pivots should be bought close to the 50-day or 10-day moving average with the same consideration as the standard 50-day moving average bounce.

If you further demand that the 50-day moving average be flat or upward trending you will do better as the stopping out point is moving in your favor.

A study done by IBD from 1980-2006 and validated in Q1 2012 says that you will capture 80% of the leaders if you cut your losses at 3.4% below the exact proper buy point. So you can see that if you chase 5% beyond the proper buy point that that stop loss becomes 8.4%, a bit too large for me.