A Breakout occurs when a stock begins making new highs out of a consolidation period.
Position and Swing Traders maintain patience through basing periods when the stock moves between support and resistance areas. When demand outweighs supply, the stock will break out through previous resistance areas.
When Breakouts occur, the price of a stock moves rapidly into new highs. Breakout Stocks bring together many types of traders – Position Traders will add to their positions, Swing Traders will take advantage of quick price movements, and Day Traders will use the increased volume to quickly enter and exit the stock.
This blog provides five strategies that will help you find breakout stocks that go on to rapidly advance.
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Moving Averages Define The Uptrend
The strongest stock moves take place when a stock is already in a confirmed uptrend. The leading stocks of a market uptrend are already progressing higher before their substantial moves begin.
Moving averages are a simple way to ensure that the price is on the right side of the trend. When you combine multiple moving averages from different time frames, you can guarantee the price is moving higher when the moving averages are all aligned.
Ensure the price is above at least one intermediate-term uptrend like the 21-day exponential or 50-day simple moving average. Insist the shorter-term moving average is above the longer-term moving average, like the 200-day simple moving average. Finally, make sure the longer-term moving average is trending higher.
Breakout Stocks Make New Highs
By definition, Breakout Stocks are breaking out of bases as they progress into new highs. How far you look back on the chart depends on the type of trader you are.
In general, stocks that make new 52-week highs continue to make new highs.
Leading stocks outperform the market and continuously make new highs. Routinely screen the New 52-Week High list when searching for the strongest stocks to trade.
A Daily Closing Range (DCR) over 45% is considered off the lows. look for closing ranges in the upper third of the daily range as a higher DCR is stronger.
Green Line Breakout
A Green Line Breakout (GLB) is a traditional horizontal resistance area that is overtaken when a stock makes a new All-Time High. Like a new 52-week high, a Green Line Breakout leads to stocks continuing into new highs.
The Deepvue Preset Screener for a Green Line Breakout will display stocks that are making new all-time highs
When trading the Green Line Breakout, demand on a high daily closing range with increased volume. This traditional breakout is more prevalent in position trading and is best viewed on a weekly chart.
Gap Up Closing Off Lows
New explosive uptrends often begin with large gaps that push stocks through basing patterns as they breakout into new highs. Gaps can occur for many reasons.
- News events
- Earnings
- Economic Factors
The important aspect of gaps to understand is that the supply has greatly outweighed the demand. When a large gap occurs look for follow-through strength with an increase of trading volume.
Add a strong Daily Closing Range (DCR) to ensure the new high followed through with strength.
Highest Daily Volume Preset
When searching for Breakout Stocks, your focus should be to quickly identify stocks that display large institutional interest and enter the market as soon as they begin to amass their positions. Institutions leave their “footprint” on charts when you see huge volume spikes.
The Highest Volume Edge looks for 4 important characteristics:
- Highest Daily Volume Ever
- Highest Daily Volume Since IPO
- Highest Daily Volume In a Year
- Highest Daily Volume Since Last Earnings
This Screener Preset utilizes the “OR” function to scan for all stocks exhibiting any of the Highest Volume conditions with a closing range off the lows.
Key Takeaways
A breakout happens when a stock moves above its consolidation phase as it pushes through resistance into new highs. Traders look for breakouts as they are accompanied by rapid price movements when supply outweighs demand.
Ensure that moving averages from different time frames are stacked and trending higher to confirm the direction of the trend.
Routinely screen for stocks that are making new 52-week highs and the Green Line Breakout preset to find stocks that are making new all-time highs.
Stocks that gap significantly higher often signal a breakout when accompanied by huge volume spikes. The Highest Volume screener preset will guide you directly to stocks with institutional interest.
New All-Time Highs
Moving Averages Aligned
Gaps With Increased Volume
Highest Volume In a Year
New 52-Week Highs