A Look at a 'Royal' Setup

 | Dec 27, 2013 | 9:30 AM EST  | Comments
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Stock quotes in this article:

yelp

,

FB

I'd like to go over something I like to call a "Royal" setup. The definition of this is one of my 3 trade setups on a daily chart that has the support of all the moving averages on the daily chart.

So for a buy setup, I want price to be above both the 200-and 50-simple moving averages. I also want to see the 5 exponential moving average above the 13 EMA which signals that we are in a "buy mode".  We would obviously like to see the exact opposite for a sell side setup. When the daily averages are fully in agreement with a trade setup, it increases the probabilities for that setup to play out. If a regular setup is 60% for example (with a trigger), a royal might be closer to 70% odds.

Don't get me wrong, not all of my successful setups are "royal" setups and they can still play out beautifully. For example, the recent low made in Facebook (FB) only had the 200 simple moving average in its favor at the time it made the low, but that setup still played out beautifully. It's more about really stacking the odds in your favor.

Let's look at the current chart of Yelp (YELP). Yelp has been rallying nicely since the 11/25 time and price low was made. This stock has not yet met an upside target for that setup at the 80.46 area, so I still believe there is upside potential. Currently, Yelp has all the daily moving averages on its side. So what I would like to set up some bullish options strategies between current levels and the support I'm seeing just below the market at the 64.69-66.13 area. If price can hold above this key daily support, I believe we can see an accelerated move to the upside in this one with my first meaningful target at the 80 handle.

If this same key support is taken out instead, I will consider myself wrong the trade. Let's see if price can hold above this key support or not.

Yelp
Dynamic Trader

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