Breakout Trading is one of the most consistently profitable trading techniques you can use in the market. In our Live Stock Chat Room our members work together to scan and profit from breakout plays everyday during market hours. Whether you’re day trading, swing trading or holding longterm positions, breakout trading is an invaluable trading technique. There are many very successful day traders who scan the markets everyday, setting their scan criteria only to alert stocks breaking out. Applying your own set of trading rules, a bit of trial and error and you have yourself a full-pledge, profitable trading strategy. I’m getting a bit ahead of myself here, let’s start with the basics.
What is a Breakout?
A ‘breakout’ occurs when a stock is able to ‘break’ above a certain price-level that has been a previous resistance. If a stock is able to breakout and push new highs after consolidation, odds are in your favor that it’s moving higher.
If you’re a day trader, that could mean a new high-of-day breakout or if you’re a bit longer term trader that could be a stock breaking out above 52-week highs on the daily chart. Either way, you’re breakout trading.
What is Breakout Trading?
A picture is worth a thousand words. In this section I’ll show you detailed annotated charts of a few breakout plays we actually played in our stock chat room.
Below is an example of an intraday 5 min chart breakout we called on BRZL. First alert was at .0067, breakout alert was at .0075 – it consolidated before each breakout and provided a few other breakout opportunities. BRZL hit a high of .0106 giving potential 58% gains in a few hours.
As you can see from the chart, consolidation can be a major factor in finding good breakout plays. It is said that the longer the consolidate period, the bigger the potential move the stock will make upon breakout. Here’s another annotated chart, this time on a daily chart of TDCP.
After TDCP’s run to .028 back in 2010 it had consolidated for over three months in a tight trading range. In late March 2011 it broke out of it’s trading range at .023, that was the first breakout signal. A few days later it blew through it’s 52 week high of .028 and started it’s run to a high of .05. TDCP continued it’s monster run to a high of .104. From the breakout point at .023 to the high at .104 we’re talking about 352% gains. Even if you had only profited from a fraction of that GIANT move you would be a very happy camper.
For more educational articles like this visit our Trading University.
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