What Is Breakout In Trading?
If the price of a stock breaks through, a significant support or resistance level break out happens, resulting in significant price changes
If the price moves inside a range, we can set a resistance level above it and a support level below it.
Price will reject several times as it approaches the resistance and support levels.
Now notice how the market started trending as soon as the price broke out of the critical level; this would have been a terrific entry point.
There are two methods for positive breakout stocks if the market has been consolidating for some time and has been rejected several times by striking the same resistance level.
After the opening, if the price key level has broken the resistance zone towards the purchasing side, it would be a suitable buying entry.
Keep in mind that you should enter after the breakout candle closes above the rejected barrier and the next candle opens above the resistance zone.
Assume that the market has been consolidating and continuously rejecting by hitting the same support level.
After the next opening, it will be a suitable selling entry if the price key level has broken through the support zone to the selling side.
Remember that one should enter after the breakout candle closes below the rejected support and the next candle opens below the support zone.
Positive Breakout stocks
If the volume had increased higher than the normal levels, it is called a breakout.
Many traders will trade when the breakout is towards the bullish side.
But when a breakout happens on the bearish side, the movement of the stock will be huge in most cases.
Positivity means not only the breakout towards the bullish side but also the breakout towards the bearish side
There will be only one process for all breakout patterns, but the time frame should differ.
For daily positive breakout stocks, the time frame has to be the daily time frame
For weekly positive breakout stocks, the time frame has to be the weekly time frame
For monthly positive breakout stocks, the time frame has to be the monthly time frame
Selection of stocks For daily, weekly, and monthly breakouts.
How To Identify Positive Breakout Stocks For Tomorrow?
I am not here to update the breakout stocks day by day; you have to find which stocks are giving breakout among your selected stocks.
Blue chips stocks are the best ones for trading in any time frame
Always trade large-cap stocks, and trade a limited number of stocks
your stocks should be counted at your fingers
Stocks Should be under the category of nifty 50 and nifty bank scrips
After the market opening, you have to check for these breakout patterns among your selected stocks.
If you find these patterns approximately, you can place entry
Do not wait for the patterns in the exact design; you will not get even one trade.
In my point of view, a breakout towards the bullish and bearish side is a positive breakout.
When the stock breaks towards the bearish side, I do not consider it as a negative breakout; for me, it is also a positive breakout because we can make profits towards the bearish also
Patterns For Daily Breakout Stocks
By mastering these patterns, you can easily identify which stock is ready for a breakout
Looking for bullish breakout stock patterns is an easy method to accomplish this.
I am sure that most of these patterns you have seen before.
Patterns like Rectangle, pennant, wedge, triangle, flag, all such types of ways for trading in breakout trading stocks
While looking at this pattern list, traders make a typical error: they wait for the market to follow the drawings’ moves.
They’ll look at the wedge pattern, for example, and try to discover candles that move in the same direction.
If you continue to do this, I can assure you that you will never discover a single pattern because prices in real life do not change in this manner.
Instead, it would be best to concentrate on locating the critical levels.
For example, when we look at this chart, we can see that the price is creating lower highs, which means we may draw a downward straight line above it due to many rejections.
We noticed more rejections below the chart, so we drew a support line; now, if you look closely, you’ll see that we’ve just discovered a triangular pattern because we have the same vital levels, a downward trend line, and a support line.
As a result, this idea is for various patterns.
A rectangular pattern forms when you see a support and resistance level.
A pennant forms when two trend lines cross
A flag pattern forms when two trend lines converge in one direction.
You won’t need to remember the name of pattern if you understand this basic principle; whether it’s a triangle, a wedge, or a Rectangle, they’re all based on the same concept.
- Consolidation of prices
- Forms important levels
Our plan would work better if you could find these basic levels.
After you’ve identified this consolidation pattern, the following stage determines whether the breakout will occur to the upside or the downside.
Traders frequently make the mistake of entering a position at the first breakthrough they notice.
For instance, we can see that the candle closes just above the top level, indicating that it is a rectangle pattern. Now traders will believe that this is the breakout and that movement will occur to the upside, and they will enter.
They’ll lose money because the breakout will not happen, and the price will stick in a consolidation zone.
How to Avoid False Breakouts In positive breakout stocks ?
Identifying the momentum candles at the time of breaking is a simple strategy that I employ to avoid false breakout trading.
A momentum candle can be a single large candle or a series of smaller candles.
For example, we can see in this chart that the price is generating lower highs so that we can create a downward trend line above it, and we can build an upward trend line below it because of higher lows
It’s a pennants design.
When the big green candle breaches the top trend line by a slight fraction, as seen in the chart, do not enter the trade blindly and risk losing money.
Wait for the next candle to form and enter the market if it is a large or medium momentum candle.
However, the red candle appeared instead, so we’ll disregard this trade and wait for the momentum green candle to form.
The following three scenarios will play out after the momentum candle occurs.
The price continues to rise.
Before moving upwards, pricing performs a retreat towards the crucial level.
A false breakout occurs when the price reverses downwards.
How can you avoid the scenarios described above?
Instead of seeking to predict what will happen next, I’m putting myself in a position to be head of the game regardless of what happens.
I will enter the purchasing position at the closing of the momentum candle.
In the case of bullish breakout stocks, I will alter my position according to the risk-reward ratio.
I’ll position my stop-loss just below the upper trend line to profit from any scenario.
If the first scenario plays out, it means the price will continue to rise, and I will be profitable.
If the second scenario occurs, the stop loss will miss, and the price pulls back to the vital level before continuing upwards, but I will still be in profit.
However, if the third scenario occurs, it will be a false breakout, and my stop loss will be activated, allowing me to save money.
You have to look for the price action patterns before a positive breakout stocks.
Types of price action patterns are wedges, triangles, price action combining patterns with candlestick patterns.
My favorite patterns for positive breakout stocks are,
- Double top or double bottom pattern
Double Top Pattern For Positive breakout stocks.
What does double top give the signal for positive breakout stocks
This double top strategy will be applicable in the uptrend.
The double top pattern is a reversal pattern.
It shows a loss of momentum from the buyers, and it is the signal for you to go against the dominant trend.
Don’t chase trades because, as you can see, there is always another opportunity and another entry.
Vice versa, in a downtrend, the double bottom pattern will be applicable.
Look for a price action reversal pattern inside of the weekly double bottom.
How To Identify Trend Change Patterns You Look For These Traits Specifically?
- You have to look for a lower high or a lower low to occur right before a trend line break in an uptrend.
- In the downtrend, you have to look for a higher high to happen right before a trend line break.
How To Maintain The Quality Of The Trades For Positive Breakout Stocks?
The more concepts and strategies you learn, the more will your trade quality.
The deeper you get into the price action, the more you will understand the quality of the trade.
You should know when to take trade and when to pass on without making an entry.
All you will gain from your experience and practice.
What Is The Target?
Your risk-to-reward ratio should determine your target.
I recommend using a trailing stop loss because breakouts occur over such a wide range in breakout trading.
If I had bought two lots and the stock had gone up to a 1:1 ratio, I would close one lot, ride the trade with one lot up to 1:2, and adjust my stop loss to my entry price.
In breakout trading, risk management is essential.
There are no definite bets in the stock market; thus, all scenarios outlined above are simply probabilities.
You will confidently obtain the most accurate trade-in breakout stocks if you strictly follow the above guidelines.
The trading view interface has a wealth of indicators and screeners.
All of the trading tools you’ll need are in one place.
Breakout stocks have screeners on the trading view platform to help with stock selection.
You can contact us for more precise and beneficial information.
We are not an advisory firm; we are simply sharing our knowledge.
These are our trending articles