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The Trend Following Bible: How Professional Traders Compound Wealth and Manage Risk by David Druz, Andrew Abraham

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CHAPTER 7

Trend Breakouts

Remember that hypothetical trades have severe limitations and are used for educational purposes only. The following examples are hypothetical and should not be utilized to provide historical data or make real-life predictions.

images

FIGURE 7.1 ArthroCare Corporation

MetaStock®. Copyright© 2012 Thomson Reuters. All rights reserved.

images ArthroCare Corporation

ArthroCare Corporation was a high-momentum stock that was one of the strongest at the time of the signal (Figure 7.1). Going through the conveyor belt of checklist items, it hit all the criteria.

Review

  1. Strongest via smoothed rate of change.
  2. Not more than 1 percent risk of total account size.
  3. MACD positive and above zero line.
  4. Not more than 5 percent of the portfolio was allocated to health care and medical appliances.
  5. Did not have 20 percent open trade equity versus core equity.
  6. Experienced a breakout trade of X days.
  7. No more than 10 longs at the time.
  8. After entry the shares started to progress and the hard stop of Y days ago was replaced by the average true range stop. This trade worked; however, as discussed repeatedly, most trades will not work.

images

FIGURE 7.2 Baidu

MetaStock®. Copyright© 2012 Thomson Reuters. ...

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