Anticipating A Breakout: $MSTR!

Hi folks,

I just wanted to make a new educational post highlighting a recent Top Pick of the Week trade Art of Trading private members recently made. We will cover how I spotted this trade, what made it strong, how it developed over time, & highlight technical characteristics as the trade developed.

First, lets cover what the "Top Pick of the Week" is. The Top Pick of the Week strategy is a straight forward strategy that I developed back in 2022. The premise of the strategy was to create a hands off approach for busy professionals who don't have the luxury of sitting in front of trading screens all day but still have an interest in the markets and what to place a trade of their own here and there without being glued to a screen.

The Top Pick of the Week is simply this, each Sunday evening Art of Trading members get a new Top Pick of the Week idea for the following week. The Top Pick is entered on the open the next day and is sold on the Friday before the close within the same week.

All of the Top Pick of the Week data is tracked at the end of each week. I have a dedicated section on my official Art of Trading blog where everything pertaining to the strategy can be found here: Top Pick Strategy

Occasionally Top Pick trades are held for an additional week depending on market dynamics and strength. In this trading review the $MSTR Top Pick was held for 2 weeks.

So how did I spot this setup and why was it a Top Pick of the candidate?

$MSTR first caught my eye earlier in March when it held support from $240 multiple times first in February and then again in March. All while at the same time markets made 15%+ moves lower during that same timeframe. April 7th Nasdaq made a new dramatic low on the year while $MSTR continued to hold above support. This in it self is the definition of relative strength.

Relative strength characteristics in a market such as the one we're in can be a very good early indicators of where money wants to rotate and wants to be when the environment stabilizations and finds strength. Early relative strength indicators can turn into very powerful short term trades which was the case for this $MSTR trade.

The second technical characteristic was the "tweezer" bottom candle stick setup that the stock made on April 9th.

The entire market traded dramatically higher this day on positive tariff related news so this setup on $MSTR wasn't necessarily so much of standout this day but its what happened in the few days after. While Nasdaq traded lower and gave back a large portion of the April 9th move $MSTR continued to trade higher. A textbook relative strength move. In this time $MSTR recaptured the 20EMA and continued to tighten up the trading range!

Factoring in these technical attributes and relative strength characteristics anticipating a pivot in the trend and a breakout above the major upper trendline was in the cards!

Anticipating a move allows for a stronger entry and tighter risk profiles. Anticipating moves in stocks often allows you to take advantage of the FOMO move before the "crowd" all want to jump in on board. You want to take advantage of this!

Anticipating a relative strength move and a continuation play was the premise for the Top Pick of the Week Setup!

The Top Pick Setup was entered on the morning of April 14th around the opening price of $309.80. The first week wasn't all that eventful for $MSTR but if you zoomed in on a smaller timeframe such as a 60 minute chart the stock coiled tightly in a very orderly fashion. This price action was a very bullish development.

"From contraction comes expansion!"

I've talked about the importance of zooming into smaller timeframes to unlock hidden patterns and this was no different here! I actually have an in depth educational guide on this lesson. Found here:

Click thumbnail for the educational guide!

Taking into consideration the strong price action from week 1 and considering once again $MSTR was showing very impressive relative strength characteristics I decided it was probably best to hold $MSTR for a second week in a row. We did just that!

Week 2 the trade began to ignite in a big way! It made the breakout above the upper trendline and we used out entry from much lower to our advantage in this case and booked half the trade to insure profits and cover risk against volatility! The power of anticipating a technical setup and trade!

The second part of the exit came just one day later at $353. About 15% higher from the $309.80 entry just 7 trading days prior!

This trade was a textbook example of putting together multiple technical attributes in order to anticipate a breakout and score a very attractive entry. Maximizing profits and reducing risk along the way. This is how that looked on the daily timeframe after it played out!

From the $309.80 entry and the two exits of $338 and $353 this trade produced a +11.52% gain in 8 trading days. Good for any market but exceptional in an environment like this!

I hope this step by step guide was a good look into a trade like this and how you can anticipate your very trades like this in the future! Use multiple timeframes, consider multiple factors and execute with confidence!

Just remember to keep it simple!

Cheers and happy trading!