My Tell All
When you hear new traders talking about Breakouts they are usually referencing stocks hitting new highs. Yes, the stock technically “broke out” to new highs but this is not what I refer to as a stock Breaking Out.
What is a Breakout?
How to Spot a Breakout
A breakout by my definition is a stock that has broken out of multi-day consolidation or to new highs on the Daily chart. This could be 10 years, 5 years or even 1 year, as long as it’s on the Daily chart.
Here is an example below:
Here is a screen shot of the 6 month chart of $VRYYF, see that purple line above that tall red candle crossing through the green candle on the right? That was a multiday breakout at the time. When the stock made new highs that resulted in that red candle, I kept the stock on watch and set an alert as I watched it consolidate for several days.
Why did I keep watching it for several days if it went red? Well, first it want a nice surge out of that boring sideways action with no volume that you can identify on the left. It was a top % gainer of that time so I kept it on watch. You may also notice that the 3 red candles after that first big red candle held close to the highs with consistent volume underneath. For me, this stock had high odds of Breaking out to new highs.
It took some volume to come in and ideally a press release and voila the stock broke out! Although the stock hadn’t quite gone supernova yet, it had a choppy consolidation day next where you can see the doge (the wick with tiny body) before it broke out again to new daily chart highs.
Where did I learn about Breakouts?
Tim Grittani and Tim Sykes!
Wondering what the best resources might be to learning about breakouts and how to trade them? Well, I am a Life Time Trading Challenge Student of Timothy Sykes just like Tim Grittani.
To become a Challenge Student check out THIS link. But there IS a catch.. not everyone is allowed in. This is an exclusive educational program that you must interview for and pass. By doing this, only dedicated students are accepted. NO LAZINESS ALLOWED!
Wondering what educational resources Tim Sykes offers if you are too nervous to join the challenge; but want to dip you toes in the sand, here’s a link to another post of mine where I worked up to the Trading Challenge.
Maybe you don’t want everything in the challenge but want to learn Just about Breakouts, Here are some DVD’s that provide education on Breakouts:
Tim Sykes – Penny Stock Framework , ShortStocking (shorts want to cover their positions when stocks breakout before they get squeezed), Spikeability , PennyStocking Silver (gives you access to thousands of trades/videos/watchlists/trade alerts explaining Tim’s thought process)
Alright, Another Example:
Multiday Breakouts 5 day, 5 minute
It’s not always enough for me to buy a stock just because it is breakout to new daily highs or even out of multiday consolidation. I need abnormal volume (not sure how to recognize abnormal volume – here’s a link to ScriptsToTrade that provides an abnormal volume indicator to help train your brain to identify when abnormal volume comes in. I am an affiliate so don’t forget to use my Discount Code: TESSA10 to save some money!), ideally a press release to help persuade the momentum upwards, and I need to identify over head resistance levels (if there are any). OH! and most importantly to my trading, I need to identify a key pattern that I recognize for best risk/reward.
This means I want the best odds!
Walk Through $RLTR
What can We Identify?
First, I want you to write out on your notes what you can identify on the chart above… What do you see that you think increases your odds for this trade?
Here’s what I see…
- I see multiday consolidation. This means it went sideways for a couple days.
- I drew a purple resistance line which became support the day the stock broke out of that multiday resistance.
- An Increase in Abnormal Volume on the breakout day (ScriptsToTrade Discount Code: TESSA10)
- I don’t have the daily image displayed but I identified key resistance zones ahead with the purple lines to give me an idea of how much potential upside there could be if the stock broke out of that multiday resistance. This means I want to definitely lock in profits when nearing the lines to say the least.
- Finally, if you read my Adapting to Different Markets: Part 1. First Green Days, then you know I look for a specific pattern to increase my odds and reduce my risk to increase my reward!
What I look for When Making My Watchlist
Preparation Meets Opportunity
Every Night I make my trading watchlist and post it publicly to profitly. Want to check it out? Here you go! First my watchlist begins with finding First Green Days, then I watch them for several days to determine if they are going to hold consolidation or if they are going to panic back to their beginnings. If they hold up for several days consolidating, recent runners, history of spikes, and ideally a news catalyst, then they are going on my breakout watchlist.
Here is a video of how I make watchlists. Make sure to like and subscribe to my YouTube channel for any updates, I will even consider making a video if you have questions and want me to explain with examples.
Here is an example from my watchlist:
These stocks made it on my watchlist due to their daily chart patterns but I have yet to trade them. Waiting for the right setups to fit all the criteria is truly a patience game that makes the difference for traders.
Someone I cherish for their patience is Mason Riley Fecht. He has also had a HUGE impact on how I create my watchlists and how I prepare for breakouts. Want to find his content? Visit his YouTube Channel also Jack Kellogg whose videos are included in the Trading Challenge both of these guys have joined Tim’s Millionaire Challenge!
Anyways, I say I don’t like morning breakouts and this is because I am still slow to the volatility of the morning spikes. My favorite strategy is when a stock breaks out in the afternoon/into power hour as the odds can increase of its continuation. Of course each stock varies so you must judge the stock yourself. One way I consider morning spike breakouts is if I have stalked the stock for several days. Ideally the stock spiked well on one day, consolidated for several days and then breaks out in the morning a few days later. This forms my favorite pattern on a longer time frame.
How to Adapt to Different Markets
How I Adapt
When the market is slow I become pickier. Sometimes this means anticipating a breakout as it approaches the resistance line. Anticipating can increase my odds incase the stock fails to breakout. Also, if the stock breaks out then pulls back, that can provide a decent entry that I might try.
(Disclaimer: I am not a financial advisor nor a professional of any kind. This blog post is to document my journey and is for informational/entertainment purposes only. Nothing in here is a recommendation for you to try. Never trade with money you aren’t willing to lose as nothing is guaranteed in trading. Also, 90% + of traders lose.)
By waiting for the best setups or a hot market, my odds of trading breakouts increase.