My views about just trading with charts are well known on our desk. This is the most difficult way to start your trading career. This is like trading with one hand behind your back. Learning how to read the order flow is essential for most to be consistently profitable traders. Chart reading is best used to supplement reading the tape for new traders. Learning how to read the order flow is like adding LeBron James to your NBA team. Having said that there are charting setups that ought to get your attention. Let’s discuss one of them.

The day after Steve Jobs announced his leave from AAPL, we traded AAPL. As you can see from the chart below AAPL could not trade above 81.50 until just before 1 PM. For the entire Open and 2 hours of the midday AAPL could not trade above 81.50. This is significant. Particularly on a day with such headlines news. There couldn’t have been an equity trader on the Street who did not know that Jobs was taking a leave. And most good equity traders were trading AAPL.

Finally AAPL traded above 81.50. And AAPL for the next hour traded around 82. This is a great chart set up. This is an excellent consolidation play. Time is important for those who study technical analysis. And for those who are not fans of technical analysis I appeal to your common sense. If 81.50 was such an important resistance level of an In Play stock, it is meaningful that AAPL did not trade back to this level. For an hour AAPL held higher.

Now how to play this trade is a matter of preference. Some will wait until AAPL clearly starts to break above 82 and looks ready for its next upmove. Scalpers would wait for such a move. Those who rely most heavily on the tape would wait for such a move. But those who are well versed in intraday technical analysis, such as Steve, will start a position around 82.

Where to start your position is a matter of feel. Again being able to read the tape will help you determine the best price to start you position.  As you can see from the chart below, AAPL trades below 82 a few times offering weaker tape reading traders an opportunity to hit the bids.  Reading the tape will help you time when to load up as AAPL is ready for its next upmove. But for even those not well schooled in tape reading you can start a position around 82.

AAPL is consolidating higher than its resistance level. It is not trading back towards 81.50. It is likely that the buyers are doing the best they can to buy AAPL as cheaply as possible. The buyers do not want to start spraying the offers to foreshadow their big buy order. So they will buy a little at 82, drop it out a bit and buy 90c and 80c. And then they might buy a little above 82 and then drop out to 82, 90c, etc.  They are buying around 82.

After the buyers have accumulated the stock they need they will take the stock higher. Starting a position near 82 makes it easier for you to hold. A position started at 90c, 80c, and 82 is easier to hold than scalping the offer near 82.33c.  Once AAPL moves powerfully above 82 this is another bullish signal.  Try and collect some more shares at favorable prices with this additional bullish signal.  Also if you look at the intraday chart it is clear that volume increases into a lot of the up bars.  This is also very bullish.  Between 1:30-2:30 when AAPL moves from 82-84 the volume per minute is probably double what it was from 11:30-1:30.  Find spots to buy more.

A consolidation play is a trade that we teach. Above is a good example. Develop your own system for trading this play. But add it to your playbook.

Enjoy your day off.