Stock Trading Tip #7

Be wary of making trades during a consolidation, which can be indicated by flat or nearly flat 5 and 15 period moving averages. It is best to make trades when the stock is in a trend identified by higher highers and higher lows for an uptrend, or lower highs and lower lows for a downtrend. A strong trend should show a wide channel between the 5 and 15 period moving averages.

If the price is consolidated into a tight range for the past several bars, be aware that a breakout may be triggered when the price moves above or below the highest/lowest values. You can either enter a trade at the breakout price as it happens, or wait for the first wave to complete and the price to pull back close to the original breakout price.