Three Line Price Break stock picks: DLB, ACGL

Dolby Laboratories stock had already formed a three line price break prior to Tuesday’s trading session at the US stock market. As the DLB share price overcame the previous high, an entry for a long entry was recommended according to the trading system we discussed yesterday. The new high printed in the first 5 minutes of trading meant that traders should have bought DLB for $30.60 a share and placing a stop loss at $29.45, Friday’s low. Following the system’s rules, the profit target is placed at $32.70, 2 times the length of Friday’s candle (about one dollar). Hopefully my tweet reached out some traders before DLB shares gained 3% by Tuesday’s closing bell.

dolby-dlb-stock-box-chart

While most investors and traders will be anticipating the earnings report by Apple after the close of regular stock market hours, I would be watching Arch Capital Group stock. ACGL shares printed a new all-time high on Tuesday at $45.68 completing a breakout above the resistance level of an ascending triangle that was confirmed three times since October! This is by far one of the most promising bullish patterns I have come across the past months!

acgl-stock-breakout

How to trade ACGL stock

First of all, despite the strong evidence of the uptrend, I still need confirmation before investing in ACGL. This confirmation will likely come if shares trade higher than $45.70 on Wednesday. Assuming that happens, Three Line Price Break suggests a long entry and a tight stop loss right below Tuesday’s candle at $44.65. I guess placing a stop loss below the recent retracement to $44.50 is also recommended.

Regarding profit targets, traders have two options:

  • Set a profit target at twice the length of the breakout candle (one dollar), at $47.70.
  • Calculate the triangle’s height ($3.20) and set a profit target by adding that height to the entry point ($48.90).

Obviously risk-averse traders will go for the first option. Another likely choice is to sell half of the shares at $47.70, close 25% of the position at $48.90 and let the remaining shares catch an even bigger swing, by using a loose trailing stop order.

Disclaimer: I am long DLB and also plan to initiate a long entry at ACGL within the next 48 hours.

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