Posted on March - 28 - 2010

Breakout Stock

The Breakout trader is a high probability trader that shoots for solid profits. Breakout traders can be day traders or swing traders. Do become a break out trader you must follow stocks and keep a huge watch list. What you are looking for is stocks with new 52 week highs, stocks that have made a gap or stocks trading in a channel.

One technical indicator that breakout traders will use is bollinger bands. When the bands get really tight it is like a pressure cooker. Break outs occur after a stock has traded with in a range, also known as consolidation or profit taking after a huge run, and then breaks out to the upside. Break out traders will usually take a position at the top end of the channel and ride the momentum for profit.

A simple way to find these stocks is visit best-free-stock-picks.com or visit nasdaq.com and find the stocks that have made a gap down in the morning. When the stocks have gapped down you should keep them on a list and wait for the MACD to be refreshed and become bullish. Once it is bullish you can consider a position above the high of the first day and try to fill the gap.

Stocks usually only trend 30% of the time. The remainder of the time they usually channel. Once the stocks start channeling these are good candidates for breakout trades and break out traders will almost always keep these on the list. One thing to remember is the tighter the range the better the breakout will be. Most traders have an idea or saying that “all gaps must be filled.” That being said when that does not happen that makes some of the nicest breakout trades. When a stock makes a huge gap up and the channels for a few days TTOONNSSS of people short. Well this is a recipe for a breakout if this channel gets broken to the upside. The reason is this will not only cause a short squeeze, but tons of buyers will also step in and this kind of trade can make for big profits.

Breakout trades are about quick profits. Breakout trades are very accurate, but can be rare if you don’t put the time in and follow stocks. The best thing to do is follow stocks and set price alerts with your brokers and trade the alerts. In trading one of the most important things is accuracy. As a day trader you focus on quick gains. So the concept above would be applied the same in regards to channels, but the day trader would look at that on a shorter intra-day basis. You would look for a period of 30 minute channeling with 2 minute candlesticks or whatever the day trader preferred. Another strategy for a breakout day trader is trying to find stocks that made a huge run up in the morning and then channeled during lunch, but break the high during power hour, which is the last hour of the day.

There is a free list of breakout stocks at http://www.best-free-stock-picks.com and the entry is posted there as well. You can use this list and review the picks to get a better idea of what a breakout trade is.

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