Yes, breakout trading can be profitable, but you’ll need a careful exit strategy to reduce losses. Setting your stop loss appropriately and watching for fake breakouts can help you increase your chances of a win. I already mentioned that trading volume and volatility often jump after a breakout.
I think it’s particularly useful when it comes to breakout trading. Apply to join the Trading Challenge if you’re serious about trading. You’ll get access to all my video lessons, live webinars, and one of the best trading chat communities on the planet. Plus you’ll get my watchlists, breakdowns of the trades my top students and I make, and MUCH more. After the first breakout in late January, the stock started to consolidate around $14 per share.
Momentum Trading 101: Everything You Need to Start
Here is a five-step process for spotting breakouts, including how to find breakout stocks in swing trading. You will initially set up the first step but continue using it until you adjust your indicators and settings. This article will explore how breakouts occur to form breakout stocks. We’ll learn the techniques used to find breakout stocks. We’ll also review some of the more popular breakout stock patterns. By the end of this article, you will thoroughly understand breakout stocks and how they can affect your trades.
In the case of going long on an upside breakout, a stop loss is typically placed just below the resistance level. In the case of going short on a downside breakout, a stop loss is typically placed just above the support level that has been breached. A breakout refers to when the price of an asset moves above a resistance area, or moves below a support area.
This led to a major move lower, with Standard Life Aberdeen shares hitting 220 on 9 February. Throughout this move, the previous support area was repeatedly tested as a new level of resistance. A sector or industry may have exceptional strength as a leader’s stock jumps on some catalyst. This can pull up the rest of the stocks in the particular industry. Traders like to play laggards when a leading stock breaks out.
- A smart trader approaches every potential breakout trade like a sniper — analyze the situation, create a plan, and execute.
- Here are seven ways to identify and profit from potential breakout stocks.
- This flurry of activity will often cause volume to rise, which shows lots of traders were interested in the breakout level.
- Breakout traders must understand technical analysis and know how to identify patterns to be able to enter and exit trades successfully.
- Breakout stocks are shown on price charts, in particular, using candlestick charts to read price action.
- Be critical when you are watching penny stocks ready to break out.
Planning your exit
Resistance and support levels are key price points a stock must break to be considered a breakout. That’s why it’s so important to use a great trading platform. If you’re looking for umarkets review one, check out StocksToTrade. It’s got all the indicators you need, plus beautiful charts, scanners, and more!
But as a trader, that’s something you have to accept. You need to be OK with small gains — they add up over time. If you always go for home runs, you’ll end up striking out more often than not. Every trader’s looking for the perfect setup — the one that’ll increase their odds and make it possible to win most of their trades. Read more in-depth information about essential stock chart patterns here.
For penny stocks and microcaps, news can drive crazy price action. Once the share price is near the prior high, if the price swings start to get smaller and smaller, this means that the size of the price movement is contracting. When the price moves above the upper trendline of the cup, traders may consider buying. Using a stop order at or near the previous level of support or resistance can prevent running losses when a stock doesn’t break out. After a successful breakout, previous support levels should become new areas of resistance and previous resistance levels should become areas of support.
Set-Up
His method involves a comprehensive analysis of market trends, economic conditions, and price action. Think of it as watching for the moment a sprinter bursts off the blocks — the strategy involves entering the race at just the right moment and riding the momentum that follows. A stock that surpasses its support or resistance level is considered a breakout stock. These levels represent the price points that the stock has struggled to move beyond during a specific period.
Position Trading
They need to recognize which way a stock’s trending and where it may go over the next several days, weeks, or even months. One key indicator for convert australian dollar to swedish krona determining a potential breakout trade is a stock’s chart history. We’ve drawn from the wisdom of market mavens like Paul Tudor Jones and Linda Bradford Raschke who have employed variations of breakout strategies to achieve remarkable success.
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