I often mention the importance of trading patterns when I talk about momentum stocks. 

I’ve explained that history may repeat itself in the past few letters – you won’t find two identical charts, but stocks with similar characteristics may have similar moves. 

Some setups repeat…

…over and over…

And below you can see a few of my favorites when it comes to continuation patterns: 

So, why do I like them so much? And why seeing one gets me so excited?

The reasons are quite simple: they let me define my risk and wait for confirmation – two most important components of my trading. 

If we’re talking about defining risk, it’s not hard to see the appeal of the charts above – the consolidation areas give you clean levels to trade against. 

Confirmation is a trickier concept though…

In simple terms, confirmation is a price action that validates my thesis. 

Confirmation means different things for each setup, but if we’re talking about long momentum uptrends, I like to see no hard failures and continuous gradual grind higher – indicators of strong underlying demand.

The setups I mentioned earlier allow just that: they demonstrate whether a stock establishes itself higher and can get supported at new price levels. 

They then provide clean risk levels I can place a trade against for the next leg higher. 

Below are three names I’m actively watching, given how well they’re shaping up:

Vertex Energy – VTNR

• Market Cap: 436M
• Free Floating Shares: 36.53M
• Short Interest: 6.40%
• ATR: 1.00

Vertex is involved with many things: from waste management to production of oil-based products. 

The price reaction to their $75M purchase of a refinery in Alabama is… impressive!

I really like the volume it did, and how well it’s been holding up since – talk about confirmation!

It seems like the next leg higher might have commenced, thus I’m interested if the stock can hold above $8 for a move to $14. 

ContextLogic – WISH

• Market Cap: 8.9B
• Free Floating Shares: 366.3M
• Short Interest: 5.01%
• ATR: 1.35

I’ve mentioned WISH a number of times over the past week as the strength so far has been just incredible – the demand is clearly there. 

The question is – will it sustain a breakout or “pop and drop”?

The stock has had a lot of trouble at $15, so I’m not looking to get involved until that resistance clears. 

If it does – I’m interested on the long side for a momentum ride higher into $20+. 

Progenity – PROG

• Market Cap: 215M
• Free Floating Shares: 45.18M
• Short Interest: 9.18%
• ATR: 0.35

Much like WISH, PROG is no newcomer – I shared with you the recap of my trade in it on the day it first popped. 

The action since has been nothing short of spectacular – the stock held well, few dips proved very short-lived and there’s been clear underlying support along the way. 

The stock has already given confirmation and started the next leg – if it holds up, I’m hoping this can develop into a full-scale momentum uptrend. 

To consider a long, I really want to see a clean hold above $3.30, a breakout above $4 and a move to a next resistance level at $5.

If that clears – we might be off to the races here.