Breakouts in stocks can be very highly rewarded IF you know how to play them. I saw a
lot of people got burnt because they play breakout pattern incorrectly. Keep in
mind that 1 or 2 bad trades can really take you out of the game! For more
classes and personal mentor join us HERE.
So what’s a breakout? It’s when price broke through an identified
level of resistance AND closes above resistance level on that day . Breakout
can be intra-day breakout, weekly breakout, multi-months breakout, 52-week
breakout. The most common that people like to play is 52-week breakout. Almost
every trader will look at 52-week breakout chart after it shows up on a scan.
Why? I don’t know. Maybe it’s just exciting to see something breaking out big
(potential big reward). However, I can tell you that those traders that always
buy on 52-week breakout will end up lose their pants sooner or later. So, below
is an example of 52-week breakout.
From a picture above, you can see that there is a fake
breakout before the real breakout. If you bought on that you
would have lost money. So before we going to play breakout pattern,
what should we know?
1.
Resistance level, draw the line to identify those levels.
2. Make sure
that the breakout is confirmed before putting buy order. Breakout candle should be quite a bit away from resistance.
3. Confirm
breakout with increase in volume.
4. Confirm
that signal again with oscillator of your choice (for me I use MACD).
5. Set stop
loss in case you are wrong (this will prevent you from a big loss).
6. Set a
sell target and stick with it (at least you should take some profit if it
reaches your price target or you see a sign of weakness on the bull runs).
Below are some examples. You will see that some will work out well and some aren’t but confirming with signals will increase your odd of winning. PS. Click on the picture to enlarge.
