Buying Stocks On Breakouts Page 2

Step Three: Take your new list of stocks (preferably 10 to 15) and begin watching them daily. You will want to watch for the stock to make a breakout to the upside. This breakout will be defined by a move above the trendline that we have drawn to connect the tops of each peak of the trading range. When the stocks make their moves, you will want to do some research. You don’t want the stock to make a jump because of news, and if it does you will want to see it follow through for at least two to three days before getting in. Oftentimes stocks that break out on news alone will have a tendency to drift back down after the news subsides. The best-case scenario would be to have the stock make the breakout on its own merit. On the chart below you will see an example of Apple Computer making a breakout. Another factor to take into consideration is the stocks volume on the breakout day. You will want to see a substantial increase in volume on the initial day that the stock breaks out.

Chart Compliments of  TC2000.com

Step Five: Step five involves the actual purchase of the stock. We would recommend that you identify the total number of shares that you plan to purchase and divide it by two. At this stage of the breakout the stock move is still somewhat speculative so only make half of your purchase here. After you have made the purchase you will want to monitor the stock carefully incase it makes a turnaround. At this point you will want to identify what the trading range is for the stock on a daily basis. If the stock trades within a range of approximately two points in a day, we would set our stop loss on the stock two points below our purchase price. In this example Apple was making advances and declines of about 1 point per day, so we would set our stop loss one point below our purchase price.