How To Trade Breakouts

Wahaa said...
7 COMMON BREAKOUT PATTERNS.
Check your favorites stocks whether they have the following patterns:
http://ibankcoin.com/chart_addict/?p=818

-------------------------------------------------------------
http://breakpointtrades.com/watch_rules.htm

Some basic rules:
1. Volume is crucial. When looking at a chart for a good entry, the key to successful trading is an increase in volume. Chart breaks without volume have a much lower probability of success.
2. Only trade breakouts with an excellent volume % relative to their 60-day volume average. Some programs like Medved Quote Tracker will provide this information for you. The 60-day moving average can also be found on Yahoo Finance under detailed quotes. Trading breakouts with big volume % will greatly enhance your probability of a successful trade. This is especially true when day trading or swing trading. (Please note: Increased volume is not as important when shorting a stock.)
Here is a simple formula you can use to determine the volume % at any point during a trading day:
[Total volume / hours into the trading day] multiplied by 6.5 (trading hours in a day)

Here's an Example:
Stock ABC has a breakpoint of $10.25 with a 60-day average volume of 500,000 shares. At 11:30AM, stock ABC breaks the $10.25 price resistance (breakpoint) with a volume of 100,000 shares.
Does this breakout possess a high probability of success? The answer is NO. Even though ABC has broken out above the 10.25 resistance level, using the formula above, the adjusted volume of 325,000 shares does not meet or exceed the 60-day average volume.
100,000 / 2 = 50,000
50,000 x (6.5) = 325,000

3. It is a good idea to avoid entering new positions in the first 15 minutes after the market open.
4. Avoid holding a position into earnings as this can result in a major loss. A Positive earnings surprise can result in a significant gain, but the potential reward usually does not merit the risk.
5. Do not overweight your trading resources in one position.
6. Do not enter a position early. Wait for a pattern to setup, make sure it has above average volume, then only enter only after the price has traded through the breakout price.
7. It's a good habit to sell 1/2 your trading position on an initial move above resistance and reset stops at entry to ensure a profitable trade. Use mental stops to avoid large losses.rket open.
8. Avoid averaging down if a position goes against you. Maintain proper mental stops. If the stock moves back up, you can always reenter.
9. Keep your emotions even. Do not become exuberant when trades go well and do not become depressed when trades do not work. Maintaining an even temperament in the short term will enable you to trade for the long term.