At the in-person Trading Conference last week, Matt Monaco and I both had our eyes on the same stock…
HUB Cyber Security Ltd. (NASDAQ: HUBC) had been holding up for weeks after having a big move on October 9.
And we were waiting for it to have a breakout over a key level.
It finally broke out on Monday. I was surprised it didn’t have a bigger move…
But yesterday was the day it followed through with a gap up and hold of the breakout level before continuing higher.
So how can you spot these breakout plays?
I’ll give you some tips below, including my favorite entry point for new traders to buy breakouts.
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How to Spot Breakout Trades
I know some folks out there say that buying breakouts doesn’t work … But maybe they’re looking at and trading the wrong setups…
Trading breakouts is all about having the right recipe and the right setup.
So today I’m sharing the ingredients in that recipe to help you spot breakouts and determine which breakouts are better than others…
Get my five tips to avoid false breakouts here.
Stock History: The First Ingredient
The first thing you should look for when trading breakouts is the stock’s history.
Take HUBC, for example … This stock has a history of running. It’s had multiple multi-day runs in the past year.
HUBC chart: 1-year, daily candle — courtesy of StocksToTrade.com
Once you know a stock has a history of running, remember that…
News Matters
Always keep an eye on the news. StocksToTrade’s Breaking News Chat is great at alerting traders to potential new catalysts…
Traders love news — it’s like a magnet that pulls them in. And we want traders to have a reason to buy.
HUBC had acquisition news yesterday which caused it to gap up and have a breakout.
Those are just two of the major criteria to spot a potential breakout…
Other Criteria for Breakout Success
Premarket Action: Look for stocks that gap up big in premarket. This means they’re on everyone’s radar.
Key Levels: Pay attention to the breakout pattern and key levels. In HUBC’s case, it bumped up against 80 cents multiple times before it finally broke through.
Confirmation: Once a stock breaks out, you can wait for it to retest the breakout level to confirm whether it can hold it or if the breakout will fail.
Best Entry: The key to successful breakout trading is getting the timing right. The best entry I like new traders to focus on is in the afternoon. Look for that stock to prove it can break out, hold the level, and continue higher with a VWAP hold high of day break with high volume. Those can be some of the most powerful breakout moves.
Final Thoughts
That’s my simple recipe for trading breakouts.
Remember, these patterns repeat. It’s all about finding the stocks with a history of running, hot news, strong premarket action, and the right pattern.
And don’t forget the best entry point.
Now, I know I’ve thrown a lot of terms at you, but don’t worry if it sounds like a word salad.
These are simple concepts. But you gotta see these patterns play out over and over again to really grasp ’em.
The best way to do that is by attending our free live training sessions multiple times per day.
Our team covers the tools to help you spot and execute trades in some of the hottest stocks…
Plus, the patterns and catalysts that are working in the current market environment.
Sign up for the next free session now!
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade