Wide Gap (3 Pivot Point Base & Break) - MBIA Inc. (Public, NYSE:MBI)

The first chart is the 15 min. time frame for MBI, a wide gapper with high pre-market volume which I traded today.

The second chart is the 1 minute time frame which highlights the key criteria to look for when scoping out the wide gap 3 pivot point base and break.

I developed this setup to trade wide, high volume gappers because they always seem to break long before the 5 period EMA catches up to price on the 15 minute time frame. Since proximity between price and the 5 ema is a criteria for a solid entry point on the 15 minute time frame, I was never sure of the correct timing and often let these setups pass me by. The last two charts show how far the 5 ema was lagging after the BO and just prior to the BO. In fact on this trade, price and the 5 ema never met until after the target (38% Fib. extension of the previous day low to the ORH) was achieved. A wide BO bar that closes strong helps pull the 5 ema closer to price.

The attributes I look for on the 1 minute chart are:

1. 3 pivots near the OR (high/low for shorts) define the base, ideally the pivots form near a whole or half dollar level;
2. price prints higher lows (lower highs for shorts) after each pivot;
3. tight price/volume contraction just before the BO.
4. 50 SMA breaks in close proximity to shorter MAs prior to or at BO.

The 15 minute opening range is key as in any gapper trade. A solid candlestick in the direction of the gap is the first observation to make. High volume is also an important success factor.



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