We were watching Amazon as it formed this nice bull flag between $550 to $580.
People always wonder when to take profits and have a hard time of knowing when. With chart patterns it helps to guide you. Given that this flag had a range of around +/- $30, we would expect that if Amazon broke out through $580 that it could go around $30 in the short term.
The stock started to flag near highs and we were able to get in with risk of $5 per share. Amazon showed great strength and never was able to even reclaim its prior resistance of $580.
Amazon started to form another bull flag between $580 to $600 and later broke out. When a strong stock is on an uptrend, it will need time to consolidate before its next leg up. When this happens a "flag" tends to form.
When focusing on flag patterns, we can get tight risk entries, have defined outs and great potential reward.
With only 100 shares of Amazon stock, the risk was $5 or $500 if the trade failed
This trade is up $35 from our entry or a $3500 gain !!!
To be successful trading long term we must strive to aim for 5:1 risk reward or better, this trade is over 7:1 !
Take Aways
Find Strong Bull Flags
Enter through the breakout
Have a defined stop
Only take trades with 5:1 or risk reward