We received several e-mails asking us about the Base and Break Pattern that we mentioned in the March Review. We've mentioned this pattern numerous times in our blog (and in our website) and it is an integral part of our trading. In fact, all members automatically receive a comprehensive summary with 15 charts illustrating how this pattern works -- we don't want anyone trading our selections until they have been introduced to our terminology and our system.
The basic point of the pattern is this: most traders trade either off the daily chart, 2-10 day chart, or from intraday patterns. What we realized some years ago was that we could increase our win rate by combining the daily and the intraday chart: this means that we trade the daily numbers, but only if the intraday also sets-up in a recognizable pattern. The base and break pattern is simply a type of consolidation-break pattern (with a number of key nuances in regards to for example how a stock approaches the top of the base before break-out) that we spotted some years ago and which we have been working on especially in the last few years .
We realized that it has a very high win rate when combined with a daily pivot and volume and have been attempting to perfect it ever since. A good number of traders use some form of consolidation break pattern for trading, and some traders use similar patterns simply on an intraday level with no regard to the daily chart -- we don't really recommend this but once in a while, especially in gap-up situations, the set-up and volume are so overwhelming, that it's worth a try -- however, for us, these are rare cases (probably once a month).
As always, there are literally thousands of ways to make money in the market and we have respect for all of them. As a new trader what you have to do is to find a system with which you have found success and which seems to fit your personality and then start the process of making the system yours. This is exactly what we did with break-out trading -- a system that has been around as long as the market has-- we started working with it, adapting it, and slowly changing it until we molded it into something that we felt was ours.
