Oliver Kell's Breakout Strategy

Overview

This lecture explains Oliver Kell's complex breakout trading strategy, focusing on price action cycles, chart patterns, entry and risk management tactics, and key fundamentals for identifying high-potential stock trades.

Strategy Framework & Price Cycle

• Oliver Kell's method is based on identifying market price cycles: reversal extension, wedge pop, EMA crossback, base and break, exhaustion extension, wedge drop.
• The 10 EMA (Exponential Moving Average) and 21 EMA are crucial indicators for entries and exits.
• The strategy applies to both long-term (trend following) and swing trades, primarily on strong growth stocks.
• Key timeframes: Weekly as anchor, daily for management, and intraday (1hr/15min) for entries.

Chart Patterns & Setups

• Primary patterns: Bull flag, bull pennant, cup and handle, flat base, VCP (volatility contraction pattern), double bottom, descending channel/wedge.
• Reversal extension: Look for capitulation and heavy volume at key moving averages, often on intraday charts.
• Wedge pop: First move back above the 10/21 EMA after a downtrend, often with tight price action and relative strength.
• EMA crossback: First pullback to 10/21 EMA after a wedge pop.
• Base and break: Consolidation at moving averages, then breakout (often a handle in a cup and handle).
• Exhaustion extension: Parabolic price move, significantly extended from moving averages—often a signal to take profits.

Key Entry & Risk Management Tactics

• Use multiple entries: Buy in pieces at moving averages and add on breakouts, raising stops with each add.
• Initial stops: 1-3% below entry, often below key moving averages or pivot lows.
• Move stops quickly to break even or the breakout bar after strong price moves.
• Use trailing stops (10/21 EMA or bar lows) to lock in profits as trends extend.
• Small loss, big win approach: Many trades are small losses, but a few large winners generate most returns.

Optimizing Profits & Exiting Trades

• Sell part of a position early (3-5x initial risk), hold core for larger moves.
• Monitor exhaustion extensions—multiple moves away from the 10 EMA signal trend endings.
• Use trendlines, bar lows, or loss of EMAs for trailing stops.
• Monitor for red flags: bearish candles, break of moving averages, or high volatility.

Fundamentals & Relative Strength

• Focus on stocks with high earnings and sales growth, strong recent EPS, and leading industry groups.
• Relative strength to the market and sector is crucial—leaders often bottom and top ahead of indices.
• Use volume spikes ("bull snorts") and gap-ups to spot institutional accumulation.
• Prefer high-beta, liquid stocks; avoid penny stocks.

Pattern Recognition & Deliberate Practice

• Pattern recognition is developed by reviewing many charts and practicing bar-by-bar execution.
• Use quizzes, historical winners, and deliberate practice to internalize setups and stop placement.

Key Terms & Definitions

• EMA (Exponential Moving Average) — Weighted moving average that emphasizes recent prices.
• Wedge Pop — Price moves back above 10/21 EMA after a downtrend.
• EMA Crossback — First pullback to 10/21 EMA after a wedge pop.
• Exhaustion Extension — Price significantly overextends above moving averages.
• Relative Strength — A stock's performance compared to the market/index.
• Inside Bar — Candle with a narrower range than previous day, indicating volatility contraction.
• Wick Play — Entry above the high of a narrow range "wick" candle, often after tightening price action.

Action Items / Next Steps

• Review and annotate charts to identify wedge pops, EMA crossbacks, exhaustion extensions, and base and break setups.
• Practice deliberate chart analysis, bar-by-bar, to improve pattern recognition.
• Study current and past leading stocks for breakout setups and relative strength.