The big bang: #Expansion The expansion phase, also known as the markup phase, follows the accumulation phase (see the preceding section) and is a period of increasing prices. If the movement out of the accumulation phase is truly an expansion period, the security’s price doesn’t reenter accumulation. So if you swing trade trends, this is the phase where you want to go long — as soon as possible. This phase marks the beginning of a change in perception among shareholders and outside investors. A stock expansion may occur as the earnings outlook for a company improves. In the case of companies with a highly successful product (think Apple and the iPod), shares may begin to rise steadily out of an accumulation pattern after that product’s launch. The expansion phase is ripe with profit opportunities. Swing traders who buy right as the expansion phase gets underway often can ride a strong trend for several days or weeks. The beauty of buying as an expansion gets underway is that the proverbial line in the sand is clearly marked. That is, you know rather quickly whether you bought at the right time based on whether the security’s price reenters the accumulation phase. If you buy late, then you risk a large loss if shares of the security rapidly fall to the breakout price level — or worse —fall back into the previous accumulation range. Use the money management strategies outlined in Chapter 10 if you’re in this boat. #Look for strong volume at the beginning of the expansion phase as confirmation that it’s genuine. If a security emerges from an accumulation phase on weak volume, that may indicate a lack of conviction on the part of buyers. Hence, the rally may be short-lived. For a refresher on the role of price and volume, flip back to the earlier section, “Nailing Down the Concepts: The Roles of Price and Volume in Charting.” For a real-life example of what the expansion phase looks like, check out Figure below, which reflects the expansion of Apache Corporation (symbol: APA). Notice how the breakout from the accumulation phase is on heavy volume, as highlighted in the volume subgraph, and that shares returned to the resistance level established in the accumulation phase. If prices had broken below that level, that’d indicate the expansion breakout had failed. Instead, shares returned to the breakout level and found support. This move is seen as a low-risk entry level. Yet not all breakouts give you such a beautiful gift. Strong breakouts often don’t return to the accumulation phase and allow reentry. #digest #trendsetter #followme
Posted on: Mon, 29 Dec 2014 18:13:18 +0000
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