Last week, I showed you how to hunt down a stock breakout.
It’s one of the most powerful setups for momentum traders…
When a ticker pushes past key resistance and begins a strong upward move, you’re on the path to a huge win.
That being said, not all breakouts are created equal, and many traders fall into the same traps.
As with everything in trading, preparation is key to avoiding the pitfalls…
But you have to know how to do it right.
Speaking of preparation, do you know what’s coming for a major AI giant?
Nvidia’s CEO, Jensen Huang, is about to trigger a game-changing event.
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Fortunately, my colleague and legendary trader, Tim Sykes, has a handle on it and knows exactly what you need to do BEFORE this happens.
Find out in his video below…
Breakouts are awesome…I love them.
But do you know how to detect the fake-outs?
Today, I’ll discuss five common mistakes traders make when buying breakouts…
Learn them so you don’t blow up your account.
Table of Contents
Mistake #1: Ignoring Volume
Price action always gets the spotlight, but volume is what powers a breakout.
Even if a stock is hitting all-time or multi-year highs, breakouts on low or average volume tend to fizzle out quickly.
I like to compare the current trading volume to the 60-day average volume.
I avoid anything whose volume isn’t at least double the average volume…And that’s the bare minimum. It should be even higher than that.
Remember, the market is an auction. The more buyers, the more eyeballs, the more likely the stock keeps moving.
Without that surge in demand, there’s simply no fuel to sustain the momentum.
Mistake #2: Trading Breakouts With No News Catalyst
A clean chart can look promising, but without a news catalyst, there’s no reason for fresh buyers to jump in.
You’re looking for substantial, timely news, like strong earnings, a major contract win, or a headline that taps into a hot trend.
Press releases loaded with vague phrases like “may,” “might,” or “plans to” are red flags.
Look for specifics with numbers, names, and real developments.
Earnings season is a great time for breakouts because the news is hot and explosive moves tend to be more frequent and more predictable.
Mistake #3: Ignoring Sector Momentum
The best breakouts often happen within hot sectors, where market attention, volume, and news flow are all concentrated.
Whether it’s nuclear stocks, EVs, AI, or crypto, hot sectors provide a rising tide that can lift multiple stocks.
If a breakout setup isn’t in a sector that’s moving, it’s less likely to catch fire, even with a solid chart.
Mistake #4: Buying Afternoon Breakouts Below VWAP
VWAP (Volume Weighted Average Price) is one of my favorite indicators, and for good reason.
Read my blog post to learn more about the VWAP Hold pattern.
Many traders are tempted to buy into an afternoon breakout simply because it checks the boxes: news, volume, sector…
Great, but if it’s trading below VWAP, it’s a no-go.
A stock under VWAP late in the day is likely losing momentum and may open weak the next morning.
Instead of jumping in, be patient. Wait until the next day, when there’s often a better entry as the chart confirms strength.
Mistake #5: Failing to Zoom Out on Your Chart
Traders often focus too much on short-term charts like the 5-day, 30-day, or 90-day…
While those can show clean setups, they don’t tell the full story.
A breakout might look perfect on a 3-month chart but fail miserably when it runs into resistance from two years ago. Yes, two years ago matters!
I always check out the 1-year, 2-year, and up to 5-year charts to spot major consolidation zones.
Avoiding breakouts into long-term resistance dramatically increases your chances of catching a move that keeps going.
My Final Thoughts…
Breakouts can be one of the most rewarding setups in trading…
But you have to approach them with a process.
Fortunately, most failed breakouts aren’t random. They’re predictable.
To recap, avoid these five mistakes:
- Trading without high volume
- Ignoring the lack of a real news catalyst
- Trading stocks outside of hot sectors
- Buying afternoon breakouts under VWAP
- Ignoring multi-year, long-term resistance levels.
By staying disciplined and using this game plan, you can increase your win rate, avoid frustration, and stay in control of your trades.
Because in breakout trading, it’s not about being first—it’s about being right.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
- As a trader, you should be looking for these things every single day.
- How did I know this penny stock would run over 400%?