Below we have a five minute chart of Regions Financial (RF). It had a bullish move up one morning, and then consolidated sideways at the high of the day. It consolidated above the current day’s opening price, above the prior day’s close, and above the rising 20 period moving average. The consolidation was tight, and the base had reduced volume. Everything looks good for a VCM break out play, and this play would have worked fine. The entry would have been at ‘1’, over the top of the base or at about 10.40. The stop would have been at ‘2’, or under 10.15. The target would have to look to a bigger time frame, and is not really relevant for this discussion.

Just as a side note, you will notice that after just ‘barely’ breaking out at ‘1’, there was a pullback that could have been used to raise the stop, or if you held off the entry at '1’, the pullback at ‘3’ could have been used. This is always a smarter way to play base break outs, on the first pullback, and has been discussed in prior lessons. .

The concept we want to raise today is yet another way to play bases. This was the way we played RF on this particular day in the VCM Proprietary Trading Room (PTR). It is aggressive, but we bought the bottom of the base at ‘2’. Both charts are numbered the same, below is the two minute chart on the same stock at the same time.

Notice a few things when you come down to the two minute chart. First note how nice the two minute VCM buy set up is at ‘2’. This is a major support type of buy set up, using the bottom of an established base.

Using this buy set up, a couple of things happen. First, the stop becomes less. The stop here is 10 cents, compared to 25 cents off the five minute chart. Also, the target becomes a greater number (whatever the target is) because we are getting in 15 cents earlier. A 15 cent greater target, and a 15 cent smaller stop will have a great impact on the reward-to-risk ratio. That is enough impact to make this trade part of your arsenal, even if it does stop out a little more often due to the tight stop.

There is one other advantage to this method of entry. Notice that while this stock continues sideways, with this entry the trader is sitting green the whole time, rather than red. This can have a huge psychological advantage while waiting on a base to break out, and keep you in the play rather than getting out.