5. Continuation Setup (CT)

[1. Setup Mastery] - [1.3 Bullish Setup] - [1.3.1 Momentum Burst (MB)] - [1.3.1.2 Continuation Setup (CT)]

1. Logic & Understanding

• Here the consolidation period is very short. That is a short period of sideway action that is in a few days.

• Consolidation should be 3 to at best 10 days of sideway action or pull back. The good ones have 3 to 5 days.

• And if consolidation becomes longer like more than 10 days and breaks out without high volume then it fails.

• Check list criteria is 2Lynch.

• This setup has the highest probability and highest win rate. There is a lot more information in the first leg of buying we know.

• Continuation setups happen more than 1000 times a year. Continuation setups happen continuously.

• We can almost find 2-3 setups in a day in the bull market even in a short term rally in a bear market. And if we are seeing more than 10 setups then selection is not up to the mark.

• This is number 1 strategy so make this work.

• Sequence of things for mastery is first continuation setup then consolidation setup then bottom bounce.

• Mastering this is absolutely necessary and it's simple too with simple rules.

• Continuation setup has more probability than consolidation then bottom bounce setup.

2. Pre-Requisite’s

• Find 2nd or 3rd leg after that it tends to fail. Sometimes 4th and 5th leg work? Yes. Probability of 4th and 5th leg working is much lower.

• On breakout day or range expansion day the stock should close near high. If not, That means there is no momentum.

• The day before the breakout it should be either negative day or small up move more like 0.5% and much more like a tiny range bar.

• Stock should not be up 2 days in a row before breakout or start of the swing.

• Important - To achieve a high win rate, Consolidation quality is the single biggest factor if this is going to work or not.

• For good consolidation quality it should be less than 10 days. Best one ranges from 3 to 7 days and if it's more than 10 days then it needs a high volume breakout to work.

• And if consolidation is choppy and has one 4% breakdown it's okay can be traded more than one then it's no go setup and that one 4% down day should have less volume.

• Volumes of consolidation days should go down in the direction of consolidation.

• Important - 1st leg should have persistent buying that is without gaps. Quality of consolidation should not have any selling or no selling that is 3 to 7 days. And the quality of breakout and this breakout should close near the high of the day.

• Checklist for this is 2LYNCH.

  • 2 - Stocks should not be up 2 days in a row.

  • L - Linearity that is in 1st leg.

  • Y - Young trend preference 1 - 3rd breakout from base.

  • N - Narrow range or negative day before breakout.

  • C - Consolidation should be narrow, Linear and low volume. No more than one 4% breakdown.

  • H - The candle should close near high or at least 20% within when entered.

3. Nuance

• If 3Q is in control then it results in a high win rate.

• To catch 20% move, hunt for a continuation setup which has 20% and more moves in the first leg and then it has a high probability that the 2nd leg will have 20% move. And usually, the 2nd leg will have less than the 1st leg.

4. Process

• Run a combo bullish scanner to find these. Every single continuation setup that is 2LYNCH will show up in this scanner. Scan it from 9:30 to 4:00. Most of the time you will find 1 2 momentum bursts in the first half an hour if not scan till 4 PM.

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