What Is A Breakout Stock?

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 sideways 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.

When traders from multiple timeframes are all trading on the same side, strong price trends will unfold and are often associated with significant institutional buying. By identifying breakout stocks early, traders aim to ride the momentum and capitalize on the stock’s strong performance as it continues to attract more buyers.

This blog provides five strategies that will help you find breakout stocks that go on to rapidly advance.

Use Moving Averages To Spot Strong Uptrends

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.

Look For Breakout Stocks Making New Highs

Breakout stocks, by definition, are hitting new highs as they break out of their base patterns. How far back you look on the chart depends on your trading style,

In general, stocks that make new highs continue to make new highs. The leading stocks of the current market cycle will consistently show up on the new 52-week high list.

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.

Identify Green Line Breakouts For New All-Time Highs

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 Screener Preset 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.

Watch For Gap Up Moves With Strong Follow-Through

New explosive uptrends often begin with large gaps that push stocks through basing patterns as they breakout into new highs. Stock Gaps can occur for many factors like:

• 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.

Track Highest Volume Spikes To Find Breakout Stocks

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:

1. Highest Daily Volume Ever
2. Highest Daily Volume Since IPO
3. Highest Daily Volume In a Year
4. 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: How To Find Breakout Stocks

A breakout happens when a stock moves above its consolidation phase as it pushes through resistance into new highs. Traders look for breakout stocks 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 breakout 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.