One of the easiest trades in the market is the breakout…
It’s neither complicated to understand, nor hard to trade…
However, it takes experience to get there. Without experience you are likely to get caught in a few too many fake-out breakouts…
Or catch a great move only to hold on too long, by swinging for the fences, and end up with a loss…
But today I am going to walk you through what a breakout trade is and how I trade it… so you can use it like a pro… and make more money in your trading.
Trading Breakouts
It all starts with support and resistance…
Support and resistance are crucial because they give us an idea of supply and demand — where traders may look to buy or sell.
Resistance is formed by an abundance of supply at a certain price level… any time price gets there, sellers step in keeping the price below that price.
When you look at a chart, you will notice places where a price goes to and then gets stuck every time it gets there, it can’t quite make a move past that price level.
These are the areas of support and resistance.
Once resistance level is established, the breakout trade comes when price breaks above that area…
The more times a stock price has touched these areas, the more valid these levels are and the more important they become.
At the same time, the longer these levels have been in play, the better the outcome when the stock price finally breaks out.
Given this… I don’t want to enter a trade before the stock breaks above resistance… I always say – wait don’t anticipate…
… this saves me from what is termed as a fakeout breakout… when a stock breaks above resistance just to come right back down after getting a bunch of traders to take the bait… Not a fun experience.
So how do I determine the difference between a breakout and a fakeout? … wait for confirmation.
There are no guarantees in trading… and without confirmation, the risk is even higher…
So what do I look for?
I like to see two things…
First I want to see above-average volume as confirmation on the break… and second I am looking for the price to close/ stay above the resistance at the end of the trading period…
This allows me to determine whether prices will sustain the levels they’ve broken above.
Thus why I had conviction in my CLSI trade… It was holding the break out at the end of the trading day…
So how do I trade a breakout?
I start with a plan. The easiest consideration is the entry point. As the name suggests, I am buying as the stock breaks out, of course… above the resistance level…
Next, I am looking for confirmation to take the trade… as I just mentioned – higher volume and price holding above the break…
The rest of the trade comes into play the next morning… I am buying this end of day breakout as an overnight play… and my exit is the next morning…
Could it run more? Sure… but I’m not looking for a home run, I am trying to make money… and trying to hit home runs is not the way to make money in the market…
… in the market, base hits are what get you home…
You see, I developed this strategy to find stocks with the best chance of trading up the very next morning, so I can bank gains overnight…
It only takes me 15 minutes at the end of the day to find the right breakout, I go about my day, sleep, wake up to gains… and then I do it again the next day…
I take a base hit every day and by the end of the week, I’m crossing home…
When I look for my Supernova Boost trade at the end of the day, I use my custom scanner to search for stocks with certain criteria that lets me know when they are ready to make a breakout…
In the case of CLSI, the chart came up in my scan and I saw great potential…
The stock had made a few big moves up recently and stopped in the same area, creating a resistance area at my supernova line…
On Sept. 30, the price was breaking above that resistance level and, as seen on the chart… the volume was way higher than average, adding confirmation to the trade…
To break it down with a little closer look, you can see the trade on a 15 min chart below…
Here you can see the volume ramps up each time the price breaks above a resistance level to make new highs…
After my research… I bought CLSI towards the end of the day… the stock was confirming to me that it was truly breaking out – volume ramped up and the price traded above resistance into the close…
So what happens next is exactly what this trade was developed for… the stock trades up the next morning and I capture my gains… $1,949 overnight.
Breakout trades offer a great way to make base hits… sure you can swing for the fences on a breakout, but why would you want to when you can grab consistent profits day after day and let them add up… quickly…
With the chances of a breakout coming back down after a pop-up, I created my system around quick profits on an overnight pop… this allows me to stack my gains while limiting my risk at the same time…
Breakouts aren’t hard to learn… If you want to learn to trade them, I Actively teach my system Live every day…
… and speaking of being neither complicated to understand nor hard to trade….
Check out this tweet from a new member… his first trade as a member was my CLSI Boost trade…
Source: PennyPro.com | Original Link