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As the saying goes, there’s more than one way to skin a cat…

And that’s true in trading as well.

As hard as it is to make it as a trader, there are so many different ways to make money in the market.

What works for me may not work for you and vice versa.

Even so, there are definitely some fundamental truths that play out over time.

And understanding the pieces as they come together will help you… no matter which trading style or chart setups work for you.

To show you what I mean…

I‘m going to walk you through two different setups in a stock I recently traded.

And show you how, although the setups are different…

The fundamentals of each are very similar.

So no matter which setup works best for you… understanding these fundamentals will help you with almost any trading strategy.

PAOG: Breaking out and Pulling back

 

First off, this is a stock that I recently traded a couple times over the past months.

It’s been good to me.

And that’s why I am able to share these examples with you today. I saw these as they happened.

Full disclosure… I only took one of the two setups I am comparing, my other trade in PAOG was a setup that occurred about a month ago.

Now let’s get to it.

Stocks will ebb and flow… so it’s only normal to expect some sort of pullback after a sharp move higher.

And that’s what we will see in PAOG… which sets us up for both a breakout trade and a pullback trade.

 

PAOG Consolidation Breakout

 

The chart below shows the setup for a consolidation breakout trade in PAOG.

The consolidation phase takes place when the stock trades in a tighter range with low volume.

If you look to the left on the chart you will also notice PAOG traded in that same range just before that big move up towards the end of July (that’s the other trade I took recently).

So if it does break to the upside, I know there are traders that got stuck in those higher prices on that quick move back down… and they likely can’t wait to just get back to break even.

This makes for a good price target in the .005 – just under .006 range because we know there will be likely be some resistance there due to the traders that “just want out.”

And the last piece of the puzzle… Volume!

You can see a nice spike in volume on the break above the consolidation range.

This shows trader conviction in the breakout.

As you can see jumping in on the break and looking for profits in our target zone could have paid off…

 

 

But look what happened next…

The stock moved back down nearly as quickly as it moved up.

Granted if we paid attention to the previous breakout, this wouldn’t be a total surprise.

It did the same thing last time… which also lent extra weight to that price target level.

 

Pullback

 

The breakout showed promise.

But what if the breakout setup isn’t your play?

PAOG just days later sets up another nice trade on a pullback.

While this is technically a different trade setup…

When you place these two setups side by sidethe fundamentals are very similar.

First look at where the pullback stopped…

PAOG traded right back to the original breakout point and held there.

This also happens to coincide with the 20 day MA so there’s a couple things lining up at that level now.

Next take a look at the candle… it’s not exactly a hammer, but there is a big wick showing us that the lower end of that candle hit a lot of support.

Now when looking at support and resistance…when a resistance level breaks, it often turns into a support level.

So while the breakout was playing the resistance level and the pullback is now playing off the support level…

In the end, both setups are actually working off the same price level.

Now some people may be jumping in right there…

But there is a little safer way to play this too.

If you notice how the next day is a tighter candle.

There’s a little pause and indecision. Traders are feeling this out and getting ready for the move.

And then it happens, the stock breaks out of the pullback range… and makes a move back above .005.

 

 

Different Trades, Similar Concepts

 

It’s an interesting case study as you can see the two trades are using different criteria, yet you would be getting in at about the same price with nearly the same target range as well.

The chart below shows both setups together.

You can see the pullback right to the top of the previous consolidation area…

Then trading up from there and signaling a potential trade around the same level as the breakout occurred.

 

 

It doesn’t matter which trade fits your style better…

Understanding the dynamics of support and resistance is key for either trade.

In the end… both setups occurred from support and resistance levels, volume, candles and chart setups all coming together to give us a picture of the supply and demand for a specific stock at a specific point in time.

To get a great start, you really need to understand how all of these different pieces work together to paint a picture on the chart.

Check out my Free Stock Trading Starter Pack to get started building your trading foundation.

Learn all about my personal strategy along with technical analysis, risk management, and the importance of having a plan that fits your own comfort levels.

Get started now with my Free Stock Trading Starter Pack

Author:
Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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