One of the most common phrases you’ll hear as a new trader is “don’t buy breakouts.”
But it’s a misconception.
Some trader buys a random breakout without any due diligence and all of a sudden they’re spreading lies like, “Breakouts don’t work.”
However, when executed correctly, breakout trades can yield significant profits.
I’ll show you an example from yesterday that offered a 60%+ move.
But it’s crucial to understand that this breakout opportunity wasn’t random or rare…
There are criteria we look for that set up the ideal breakout trade.
Laser Photonics Corporation (NASDAQ: LASE) had the criteria lined up — let’s dive into what made it a successful breakout so you can stop buying false breakouts.
Identifying Successful Breakouts: The LASE Example
Yesterday morning in premarket I had my eyes on Laser Photonics Corporation (NASDAQ: LASE).
It had a nice gap up and then consolidated for about 30 minutes before breaking out.
LASE chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
The breakout occurred at the $2.50 level and it wasn’t a random event — it was backed by multiple time frame alignments.
I often discuss lining up multiple chart time frames. It’s a concept I learned from Brian Shannon’s book, “Technical Analysis Using Multiple Timeframes.”
By aligning different time frames, we can identify strong breakout opportunities.
See how the intraday premarket breakout aligns with the $2.50 breakout level on the daily chart…
LASE chart: 6-month, daily candle — courtesy of StocksToTrade.com
Plus, the stock had all the elements we look for in a breakout trade — a low float, news catalyst, and great volume.
What Causes Failed Breakouts?
Now, let’s address the misconception that buying breakouts doesn’t work.
The truth is, it’s not the strategy that fails — it’s the lack of a process.
Without a structured approach, traders end up buying breakouts without considering essential factors…
Buying random breakouts with no volume, news, or float rotation is a recipe for disaster.
But when you have a solid process in place, buying breakouts can be highly profitable.
Develop a methodology that includes a checklist of essential criteria for identifying breakout trades.
Consider factors like volume, catalysts, float, and float rotation. Then align the breakout on multiple time frames.
Successful trading is all about having a process — so have one, stick to it, and avoid random failed breakouts.
I give you a process to follow in the Daily Income Trader system. You’ll get live mentorship webinars where we go over the process of finding trades every morning and afternoon.
Plus, you get access to groundbreaking tools you need to succeed.
Take a free tour and start your journey to profitable trading today.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade