The first trade is an intraday pattern of a 5 minute bar chart that is the basic „dip and rally“ setup for a buy breakout.

The consolidation at the high of the day is the key to the success of this setup, as it is with other pattern variations. The longer and tighter the consolidation, the better. This is a setup that develops through the day. Another more obvious pattern looks like this:

Another intraday consolidation pattern that you may see looks a bit different but it can also be a powerful setup:

In the above setup #3, an active stock can show a deceptively illiquid intraday bar chart. The key to this chart pattern is to make sure the stock averages good volume on a daily basis (i.e. 100k shares +), and that the daily bar chart shows good room for movement to the upside without nearby price resistance. You can also keep tabs on its volume in the market maker screen.

The next chart is another common example leading to consolidation and a good breakout trade:

Early morning consolidation (similar to pattern #2) can be an integral part of entering trades at the start of the trading day (although it is best to wait 10 minutes before you enter a trade). This way you can catch the first and best breakout. If you are following a particular stock with the expectation of a good move on the day (or simply stumble across one with the following pattern), it may be a strong trade candidate. This is especially true if your market maker screen is moving and showing momentum coming into the breakout. The pattern consists of just a few bars on the morning and a range of only a 1/8 to 1/4.

The point here is to catch the earliest breakout and best price…otherwise pass up the trade. Never chase a stock.

Once a breakout takes place, the stock normally begins a move. If you miss the initial breakout, other consolidation opportunities may setup in the stock as the day progresses. For example:

Obviously the first breakout is the best to take. The question arises as to whether you should take the second, third, fourth, etc… breakout. If you missed the earlier breakout(s), how do you know whether or not to take the next one? The best way is to know how long the overall market has been moving in a direction, and if it is losing steam. Also, consider the average daily range of the stock as well as the strength (momentum) of the breakout. If the stock often trades a 2 to 3 point daiiy range, then the subsequent breakouts may still have potential if the range on the day is, for example, only 1 and 1/8 points at that time. Looking at the daily historical chart will show whether the price is breaking out of a daily consolidation area and if daily support or resistance has been broken. This can often lead to a large magnitude move, even if the last tew daily bars have been in a narrow price range. Again, the longer the consolidation on the 5 minute bar chart the better the trade.

Trade setup #7 depicts 2 good trade entry points following extended consolidation. Both of them maybe worth taking, even though the first trade is a losing trade. The second breakout to the downside should not necessarily be passed up just because you lost on the first setup on the same stock earlier in the day.

„Wedging“ consolidation on the 5 minute chart, especially if it develops over the first i to 2 hours of trading, can precipitate strong breakout moves. This pattern usually sets up for a trade on the long side. Consolidation at the high of the day must be present and hugging the upper price boundary as the wedge pattern unfolds. Here is the buy setup:

So far we've looked at the best and preferred trade setups where you should trade the breakout of the current high or low of the day out of strong consolidation…the longer the consolidation, the better. There are also a few setups that are more aggressive and may be tradable.