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2020issue C1025

Constructing late-trend longs with a price channel, gap breakout, and trailing stop

After at least two weeks of defined uptrend action, recent highs and lows can be marked as a price channel. A small upside gap that clears that channel starts a written plan: wait for an advance of at least 0.50 dollars above the breakout day's high, then bind the long with an initial day-low stop and a two-dollar trailing stop.

  • After an uptrend of at least two weeks, recent highs and lows can be marked as a price channel that contains later trading until a breakout appears.
  • A small upside gap that clears that preexisting channel is classified as a continuation breakout, not as ordinary in-range movement.
  • The constructed entry waits until price has advanced at least 0.50 dollars above the high of the breakout day, then places an initial stop one dollar below the entry day's low and a two-dollar trailing stop.
  • The same channel-plus-gap signal may open a new long or add to a long already held. Price still inside the channel is treated as noise.
Entries in this reading3 entries
Current trackPrice channel77 readingsTrailing stop87 readingsBreakout confirmation172 readings

Start with a defined uptrend channel

Setup work starts by scanning for charts with two or more weeks of defined uptrend action and holding those symbols on a watchlist until the small upside gap-breakout appears.

After an uptrend lasting at least two weeks, recent highs and lows can be marked as a price channel that contains subsequent trading. That price channel is a visually marked band of those highs and lows. It contains ordinary range movement until a breakout appears.

Price action that remains inside the current channel is treated as noise. The written plan begins only when the channel-breakout signal appears.

Treat the small upside gap as the breakout

A small upside gap that clears that preexisting channel is classified as a continuation breakout rather than ordinary in-range movement. The breakout is treated as confirmation that renewed buying has started, not as in-range noise.

Gap-continuation names the same event more narrowly: a modest upside opening gap that appears inside an established uptrend and extends the prior channel rather than reversing it.

Write the entry offset before opening or adding

The constructed entry waits until price has advanced at least 0.50 dollars above the high of the day on which the channel breakout is observed. That entry-offset is the minimum advance required before the long is opened or added to.

The same channel-plus-gap signal may open a new long or add to a long already held.

Bind the idea with an initial stop and a trailing stop

The initial stop is placed one dollar below the low of the day the position is entered.

After that initial stop is set, risk is further bounded with a two-dollar trailing stop. The trailing stop is a follow-along exit that stays a fixed two-dollar distance from price after the initial stop has already been placed one dollar below the entry day's low.

OSTK daily closes around the July 2020 price-channel breakout

A trader should see two-plus weeks of rising closes locked in an ascending July channel, then a small gap through the ceiling near 30 July, then a vertical follow-through toward 110. Dollar values were read from the candlesticks against the chart’s printed price scale; they are approximate, not a published table.
A trader should see two-plus weeks of rising closes locked in an ascending July channel, then a small gap through the ceiling near 30 July, then a vertical follow-through toward 110. Dollar values were read from the candlesticks against the chart’s printed price scale; they are approximate, not a published table.Overstock.com Inc. (OSTK) · daily · 2020-05-12T00:00:00.000Z to 2020-08-14T00:00:00.000Z

Digitized from the daily candle raster and rounded to whole dollars. The article’s 0.50-dollar entry offset, 1-dollar initial stop, and 2-dollar trailing stop are rules, not plotted series.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
54 of 55 in the Price channel track
20251-52 pp.Next on Price channelUsing IBM's multi-year price channel as a breakout teaching casePrice that stays inside a Price channel is treated as a sideways trend. Decisive trade above the upper Trendline is treated as Breakout confirmation and the start of a new uptrend.
All readings on this track · 55 readings
  1. 1988Constructing price channels from trendlines
  2. 1988Three-point curved trend channel construction
  3. 1988Least-squares construction of channel trendlines
  4. 1988Three-zone price channel from quadratic smoothing
  5. 1989A variable-sensitivity stochastic built on three-sigma bounds
  6. 1989Close-minus-average oscillator for channel extremes
  7. 1989The six-stage hunt as a critique of one-click heroics
  8. 1990Fair-value gaps and a copper moving-average channel
  9. 1990Diversify markets, not systems, to cut trend-system variance
  10. 1991Constructing trendlines, price channels, and close-based breakouts
  11. 1991Constructing seasonal-cycle overlays with channel confirmation
  12. 1993Lag-compensated exponential trend channel construction
  13. 1993Constructing a lead-lag filter and price channel as one stack
  14. 1993Three stochastic warnings still need price-channel confirmation
  15. 1993Lead-lag smoothing for weekly trend-channel construction
  16. 1993Constructing zero-net-lag price channels
  17. 1995From a downtrend-line break to a regression channel
  18. 1995Validated trendline and price channel construction
  19. 1995Constructing price envelopes from averages, volatility, and regression
  20. 1996Constructing trendlines and channels from explicit swings
  21. 1998Fifty percent retracement as a channel regime test
  22. 1998Close-based channel rails as daily scenario maps
  23. 1999Constructing support, resistance, trendlines, and price channels
  24. 2001Cycle composites, price channels, and two-sided signals
  25. 2001Testing horizontal price channels with stops and scale
  26. 2002A two-stage momentum-shift and price-channel process
  27. 2002Wave-by-wave channel construction for Elliott counts
  28. 2002Affine channels as reusable trade hypotheses
  29. 2004Stress-test seasonal windows across regimes, then add channels
  30. 2004Regime permission from trendlines, channels, and range edges
  31. 2004Weekly-average and price-channel states on sector depositary baskets
  32. 2005Oil services catch-up after channel resistance breaks
  33. 2005Constructing a volatility-normalized cycle index
  34. 2005How a Darvas channel becomes a complete entry and exit procedure
  35. 2005Clustered Fibonacci and channel levels in news-driven forex
  36. 2005Treat a consolidating currency market as a time-frame problem
  37. 2005Channel walls that flip roles or recapture price
  38. 2006Stacking candlesticks, crossovers, and price channels
  39. 2006Failed uptrend channel breakout left the euro rangebound
  40. 2006Constructing a Wilson relative price channel from a range-bound strength index
  41. 2007Range bars change when a Bollinger squeeze counts as a breakout
  42. 2009One testable SPY procedure for a price channel, a trend rule, and a seasonal overlay
  43. 2010A gold-miner channel plan from value to false breakouts
  44. 2010A multi-timeframe channel from value to an overvalued zone
  45. 2010Asymmetric price channel construction for congested markets
  46. 2011Phasing many cycles at once with nested envelopes
  47. 2012Constructing adaptive horizontal price channels
  48. 2014Confirming support with trendlines, channels, and retracements
  49. 2015News-sentiment confirmation for support, channel, and volume tests
  50. 2015A three-layer permission stack: moving averages, a price channel, and weekly levels
  51. 2016Entropy-diff as a regime switch between trend following and a price channel
  52. 2017Competing rulers on a pound chart after Brexit
  53. 2017Test consolidation channel breakouts as one procedure
  54. 2020Constructing late-trend longs with a price channel, gap breakout, and trailing stop
  55. 2025Using IBM's multi-year price channel as a breakout teaching case
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