How to Spot a Breakout Opportunity
Breakouts can trigger incredible opportunity.
Once a stock begins to trend to a new high, or takes our prior resistance points, new buyers begin to emerge, as momentum begins to pick up steam.
And if you’re in the right place at the right time, you could make a fortune.
That doesn’t mean all breakouts are worthy, though.
About 70% of breakouts have a tendency to fail, too. To confirm, we simply want to make sure a stock closes above the break over multiple days. One of the last things we want to do is get caught in a bear trap and lose everything.
But jump on the right breakout, and the gains can be great.
A few days before Amazon’s dramatic surge a mysterious pattern appeared. It was just spotted
again with two BIG stocks. Their names are (Continue…)
One of my favorite breakout patterns is the break from consolidation, which can result in quick and massive moves higher, especially if accompanied by big volume and sizable, exciting news. A great example of this can be found with Canadian Solar (CSIQ).
Between April and June 2017, CSIQ consolidated in a range between $12 and $14 a share. It was going nowhere at the time. However, once news hit that Donald Trump was considering the idea of a Mexican wall lined with solar panels, related solar stocks broke above consolidation, exploding well above prior resistance, and hitting new highs.
“We’re thinking of something that’s unique, we’re talking about the southern border. Lots of sun, lots of heat,” Trump said, as quoted by Bloomberg “We’re thinking about building the wall as a solar wall, so it creates energy, and pays for itself. And this way Mexico will have to pay much less money, and that’s good.”
Before buying the breakout, we confirmed the break higher by watching to see if CSIQ stayed above prior resistance for a few days, which it did.
We can even trade reversal breaks higher.
A reversal breakout can happen after a sharp down move with heavy volume. This can happen from a combination of frantic short covering or bargain buyers watching oversold momentum indicators. For example, let’s look at Randgold Resources (GOLD).
Multiple times, as GOLD became oversold on momentum indicators, such as relative strength (RSI), MACD, and Williams’ %R, the stock has a historical tendency to reverse and break higher, as we can see here.
These are just a couple of breakout ideas to be well aware of, as you trade.
But remember, confirmation is key to breakout trading success.
Without that key ingredient, you could set yourself up for failure. Spot the right setup, though, and you could reap the rewards.
When breakouts occur, it can provide an opportunity to cash in on large moves quickly. In many stocks, a mysterious "X-Pattern" can occur on the charts, signalling a potential breakout before it happens. Click Here to learn more about this chart pattern.