AAOI Surging to Sixty with Two Bull Flags

Mar 27, 2017: 11:37 AM CST

We like to buy pullbacks in strong trends with rising volume and momentum.

A stock you’ve probably not heard of – Applied Optoelectronics (AAOI) – serves as the most recent example of this core trading concept.

Here’s the uptrend, flags, and outcome so far as another “strong stock keeps getting stronger:”

As explained in far more detail in our “Perfect Pullback” Strategy series, we want to focus our attention on trading IN the direction of a prevailing trend.

Generally, we want to buy shares on a pullback to a rising moving average or trendline as the trend progresses.

Buying pullbacks gives us objective (not guessing) entry prices as well as prices to locate initial stop-losses.

After stagnating around the $20 to $25 per share area, buyers aggressively accumulated shares during the January breakout, beginning a new uptrend phase in this lesser-known stock.

A pullback to the rising 20 EMA set the stage for a successful bullish trade in February.

Shares continued to surge as another breakout (gap) was confirmed with new highs in volume and momentum.

We would wait for a pullback to enter such a strong stock and that pullback developed earlier in March.

After a pullback to the rising 20 EMA (on declining bearish volume), share prices surged once again as would be expected, moving “up away from” the rising 20 EMA toward the current round number price point of $60.00 per share.

Continue studying this example and find similar patterns as you build your confidence to execute this simple strategy.

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Corey Rosenbloom, CMT

Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).”

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