When price is undergoing a period of consolidation, it can be tricky to determine when and where, if at all, to go long. Sometimes, you might be able to see a clear base formation; a clear support and resistance level. Sometimes, the price levels will not be so clear.
But there are times when the situation will appear even more technically obscure, such as when you see two bases, two sequential sets of support and resistance. Which one do you trade, the first or the second?
Such was the situation with Canopy Growth Corporation (CGC) from December 14, 2017 to May 4, 2018. The chart looked like this:
How can you trade something like this? If you were interested in going long this stock, where would you place your entry, and what might indicate a good trigger for going long?
Before we answer these questions, let’s identify the technical factors that might make this price chart confusing. Here’s another way of looking at the chart:
Here’s what makes this chart confusing:
- At (1) you have a consolidation range that seems to be forming between the $18.80 and $25.00 range.
- But at (2) you have a higher consolidation range between the $23 and $27 range.
- You have potential resistance at (3) the high of the April 2 spike of $32.78, and the highest high (more potential resistance) at (4) of $35.88.
One way to look at this would be to go long upon a breakout of (1) and seeing if it clears resistance at the top of (2), at which point price must stay above the $23 range. Should price clear this range, a swing trader might view (3) and (4) as consecutive profit targets.
And although there are many potential indicators for a strong breakout trigger, what follows is in the next section happens to be a classic scenario which, although never guaranteed, tells us that a breakout might have a stronger chance of succeeding.
Introducing Thrust Bars
A term that we borrowed from the famous trader, Joe Ross, “thrust bars” are typically double the size of the previous bars and occur at the lows (breaking lower) or highs (breaking higher) of a consolidation range.
Although thrust bars move in both directions, thrust bars moving in an upward direction tend to be more reliable, if only for the assumption (based on market psychology) that the act of buying tends to be a more deliberate than the act of selling which can be at times be triggered by panic.
Thrust bars occurred on two occasions, each corresponding with a breakout from the consolidation levels we identified above.
At (5) we see a thrust bar supported by high volume (5a) breaking out of consolidation range (1). At (6) we see another thrust bar with high volume (6a) breaking out of range (2).
We can also see that targets (3) and (4) were hit, after which price declined and bounced off the top of range (2), former resistance turned support level.
Although thrust bars are never sure-fire indicators, they do tell you that a large volume of buying activity took place at a critical price juncture.
So, what makes thrust bars a strong indicator is not only the volume of activity but also the location of that activity.
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