I recently sent out an e-mail to my subscribers and asked what they’d like to read more about here and promised that I would write about that. I got several responses, and some of you asked if I could go deeper into the trade setups I’m looking for and comfortable with to trade. So as I promised, in the next weeks I’ll be explaining the strategies I use for trading more closely.
One of the setups I’m most comfortable at trading are technical breakouts to new highs with above average trading volume. These plays mostly happen when a company has some good news coming out. This can be an earnings report, a new contract deal, a new product or whatever the market thinks is good for the stock.
When a stock makes new highs it is a completely new terrain on it’s chart where there are no resistance levels from earlier. This can cause the stocks to go parabolic into the sky because only the current traders are going to take profit. When the stock is still in a price range where it has been before there is still chance for previous buyers cutting their losses or trying to get break-even before the stock can really spike.
It is very easy to find stocks that have already made new highs, there are lots of screeners available that filter these stocks. Off course it is much better to find the stocks before they’re making new highs and start spiking, so you can profit the most from them.
HOW TO FIND STOCKS THAT MIGHT BREAK OUT SOON?
Several screeners also offer the option to select a filter of how much % the stock is below it’s 52-week high. Which gives you an overview of stocks there are near the breakout level of the last 52-week highs. You can expand these chart as much as you can and simply see if it is the all-time high for the stock as well as the 52-week high.
But there are lots of stocks there are making new highs but that are no good plays. Because they’re gradually up-trending and making any profit of them will take you forever. So I’m looking for more that just nearing new highs.
I also want the volume to be above average, as this indicates that there is already a more than normal interest in the stock. That might be due to traders who have found good information about the stock that is about the spread and will increase the attention only more.
Sometimes I only look at the unusual volume at my screener to see what stocks are trading above average. Then I check their charts and decide whether they are, or can become, interesting enough to research more and put them on my watchlist.
PERFECT EXAMPLE OF A GREAT EARLY FIND
A great recent example of a perfect technical breakout that caught my eye early on is $LIVE. I put it on my watchlist on the 12th of December 2013 because I’d found the chart below during my unusual volume screening.
As you can see it is still no-where near breaking out to new highs, but the volume bar in the bottom of the chart is suddenly spiking. In the end of November a similar volume spike had already occurred.
The average 3-months volume of $LIVE at the time was 49,192 and that day it traded over 500k, a massive increase. As the stock only had a 1.07M share float it traded half of it shares in that day. If the interest in the stock would increase it could easily spike because there are not that much shares available.
So far so good, this one made it to my watchlist for the coming time to see where it could go. I still wanted to have the news spread more and see if there would be enough interest in the stock. Besides that I was looking for it to break the resistance at $5ish, which had been tested several times early October.
THE CHART CONTINUOUS
The next week there was not much interest in LiveDeal and the stock dropped back to around $3.25ish which made it not that interesting to me anymore at the time. But than suddenly the trading volume started to increase over days and the stock price also started to get higher day after day. It was now nearing resistance price level between $5 and $5.25.
It gapped up just above $5.00 which was a perfect buy signal. Intra-day it was able to break above the complete resistance range at $5.25ish and the resistance levels became solid intra-day support. It closed around $5.70 at new highs on strong volume.
The next day it gapped up again and really went nuts. It traded about 1.5M shares that day, remember it only had a float of only 1.07M? So half of the share were traded twice that day. It spiked all the way up to $9.50 almost doubled in a day.
Off course lots of traders took profits the next day creating a red candle on the chart.
Now Groupon was mentioned in the PR which gave it even more attention.
After it’s spike on the 7th there were a lots of shorts in $LIVE, they got squeezed on this good news coming out and were all forced to cover their positions causing the price to push itselfs intra-day over $12.
On this day Superman
alerted the stock to his subscribers which also increased the interest in it.
Another 10 days later the chart looks like this. It kept spiking with insane trading volume day after day. It managed to touch it’s all time high of $25, it quintupled (yes, that’s 500%) from my initial entry point.
INTRA-DAY BREAK OUT TO NEW HIGHS
Stocks with unexpected good news coming out can spike out of nothing. While spiking they can some times already start to make new highs intra-day. Because you can’t always anticipate news articles I always look at the new 52-week highs of the day. I do check this during trading hours when there are not many other plays for me at that moment, but mostly will I find these when I’m building my watch list for the next day.
When I check the charts of the stocks making new highs I scan through them and look for big candles. They represent a big spike on that day and that’s what interests me most as that is where the most opportunities lie to profit from. Most of the time the big candle will be accompanied by an increase of the trading volume for the day. As more traders are tempted to trade stocks that have bigs news coming out, and almost every trader is watching break outs to new highs.
A great example of a stock that suddenly broke out to new highs is $JRJC on November 18th. The chart below is the one I put on my watch list when searching for plays for the next day or days. The candle at the most right side of the chart represents the last trading day. It show a massive spike on the day, it opened at $2.80 and the high of the day was $3.56. Also the volume, shown in the bottom of the chart, suddenly spiked from an average of about 10,000 to 15,000 shares a day up to 1.1M shares traded on that day.
The stock closed at $3.32, which is represented with the top of the white candle. As you can see in the chart this is the price that previously was the top for $JRJC which had been tested two times in early October. To me this is a strong signal as the stock broke out intra-day, but lots of traders have already taken their profit as the stock faded and closed about 20ct below the high of the day. But for me it is a bullish sign that it closed around the previous top from early October. This shows that there are still enough traders interested in the stock that don’t rush to take their profit now. Or if they already did, that they bought back to anticipate a further run up.
So lets take a look at how this one has been trading the next days. The chart below shows $JRJC after the 6th of December, almost the top of this run up. The chart shows that the first week after the initial break out the stock couldn’t really spike. There were several days with new intra-day highs but where the close at the end of the day was not that much higher that this could really go parabolic. The day after the break out there was another volume spike up to 1M shares.
The next few days the volume faded and the chart shows that, because of the lack of volume, the stock couldn’t really break out further. After a coulple of days it finally managed to get over $3.50 as round number resistance, although this still wasn’t the real break out higher. For a couple of days it traded just above $3.50, on almost average volume, which made this now support.
Then the stock gapped up and the volume came back in $JRJC, this helped the stock to really break out. And now the sky was the limit, in four days it touched the $5.00, making 1.50$/share or 40% profit.
So how can you play a chart like this?
The initial break out to new highs is very hard to catch as it comes so suddenly as this one. I hadn’t seen this stock on any of my screeners the days before the spike, because there was nothing really interesting happening so far. But when it made new highs intra-day on amazingly strong volume, and held previous highs as support it was a buy opportunity. That are several signals showing you that there is much upside interest in this stock. The first few days would have been slow, but eventually it spiked in a few days which can give you a nice profit.
If you don’t want to hold a stock that long before the real spike happens you should still have been watching it after the initial spike. It didn’t have a red day afterwards before the big spike, day after day is closed green on the day. Several days is tried to break out, but it faded intra-day because of traders taking profits of the table. When it gapped up after making $3.50 solid support you should have bought it for the real run up.
MULTIPLE PERFECT INDICATORS
Skyrocketed on announcing to have met its projected order targets for Q4 2013. Which meant that it would also meet, or exceed it’s projected earnings for 2013. This caused the stock to gap up 50ct higher than the previous close, from a fade after a big spike early December. This showed the potential this stock has to spike in a few days, which could and probably will be the case again now.
This chart shows several perfect indicators that this stock will continue it’s spike for the next days. It has [highlight]great news[/highlight] out, which shows that the company is strong and doing great business lately. It[highlight]gapped up[/highlight] big as there was already lots of interest in the stock during pre-market. A lots of[highlight]shorts trapped[/highlight] in the stock as it was fading after it’s previous spike. The earlier spike makes this a confirmed[highlight]former runner[/highlight] that will be able to spike again and again. It broke out to[highlight]new all time highs[/highlight] intra-day and[highlight]closed at it’s highs[/highlight] which shows that traders are confident to hold this overnight and don’t want to take profit already as they expect it to go higher
Did $PLUG do what I expected? Yes, it did and how. It gapped up big the next day again, traded a little choppy that day as traders were taking profit or covering there short positions again. It sort of consolidated for two days before it continued it’s spike after another big gap up, now over $3.00. It ran for two more days and almost touched $5.00, almost 120% gain in one week!
As you’ve read there are several indicators that help stocks breaking out to new highs to continue their spike. I’ve mostly been focusing on going long on these perfect charts as they have been giving me some great profits over time. I’m looking into getting Superman’s alerts
as he has perfected the art of searching for stocks with explosive potential and spotting the momentum before it happens.
When doing your research you can spot stocks that are setting up to spike early on. You just have to keep track of them and check the chart and news every day to be there when the real run up starts.