Source: Penny Stocks
Breakout Trading is another day trading strategy and is the act of buying a stock after the price of that stock has moved outside of a pre-defined price range. These price ranges are often defined by the support or resistance areas of a stock. They rely on the stock to “breakout” or “break through” those support or resistance areas. Read about support and resistance areas here.
In addition, for a stock to truly fit the breakout trading strategy, it will almost always need to be accompanied by increased volume. Increased volume typically indicates that the amount of buyers (or sellers) is growing. This can lead to explosions upward when resistance levels are broken leaving little to slow down the stocks upward movement. But enough talking, let’s take a look:
You can see from the chart above that the price bounces between the support and resistance lines multiple times until it reaches a breakout point and skyrockets upward. In addition, the breakout trade is confirmed when you see at the drastically increased volume (the blue bars along the bottom).
In these scenarios, your entry would likely be within the first green candle above the resistance line. Your likely exit would be based upon what type of profit strategy you’re using.