Trading Breakaway

Breakaway Gap

Trading Breakaway Gap

The example above illustrates a Breakaway gap setup from the Sepracor's (SEPR) daily chart. Breakaway gaps develop from consolidation zones and are not filled for a long time. SEPR traded in a consolidation zone after an extended rally from December to January, 2006. In late January 2006, a Breakaway gap was created as SEPR expanded its trading range to downside from $60 to $57.75.

1. Enter a "short" trade below the low of the gap bar at $56.

2. Place a "stop" order above the high of the gap range at $60.

3. Place a target near the major swing low prior to the rally at $50.

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