Proper use of technical analysis will give you a huge advantage in the world of trading or investing. I use technical and fundamental analysis in my overall trading plan. This puts as many factors as possible in my favor before taking a position in the market.

Today, I will talk about a tactic called “Channel Range Breakout Trading”. With this strategy, you use momentum to your advantage. A position in the market is only taken after the price moves out of a trading range.

A good example would be a stock trading in a price range of 19-22 dollars per share for 3 months. Every time the price went down to around 19, it rebounded, and every time the price went up to about 22, it pulled back during this 3 month time frame. If the stock price breaks above 22, on heavy volume, you would want to go long. If the stock price breaks below 19, on heavy volume, you would want to go short. Many times it would be wise to wait for a close, above or below, the 3 month trading range before entering into a position.

Important principles concerning this breakout strategy include, the longer the sideways price channel, the more important the breakout. The closing price of the day or week gives added weight, because it tells you if buyers or sellers are in control at the end of this time period. Two or more closes out of the original trading range give more credibility to the breakout, and shows that momentum is more solidly on your side. It is also important to identify key support or resistance levels from a daily, weekly and monthly time frame.

This is only one of many trading strategies, when implemented properly, can make you a lot of money. Always remember to keep your losses small when the market goes against you. Also, let your profits run, which means to stay in a winning position until solid evidence tells you to get out.

Gary E Kerkow is the founder of Tradingmarkets4u.com. This site provides information to help traders and investors become successful. Kerkow has over 20 years of trading experience including stocks, futures and options. He implements the strategies, methods, techniques, principles and psychology of the world’s best traders and investors. This includes Jesse Livermore, William J O’Neil and others. Visit my website at http://www.tradingmarkets4u.com.

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