This is one question which has been asked many times.
Today I shall try to put some light on it.
Breakout Trading is a MindSet of Trading where a trader looks for various price patterns which can leads to substantial price movement and thus profit from this.
Also the second most important part of this MindSet is trailing a position as long as it moves good.
There are many ways of achieving the objective. I would describe what I use.
- Make sure you have tools which help you visualize chart patterns* and also some which can help you get live data**.
- You should be aware of theories like Elliott Wave*** and Price patterns.
- The tool you use should alert you when price patterns like triangles, flats, wedges etc are breaking so that you do not loose time and potential profits. Also entering late can make your stop loss large which is again a disadvantage.
- Find stocks which made a substantial upmove and then have retraced 38% to 62% of that move. Stocks like this can show move upwaves and this is what you are looking for.
- Focusing on stocks which are very flat would not yield good results. But donot forget that slow moving stocks can catch momentum and turn into a darling. So no stock is permanently good or bad..
- Point 5, doesn't implies chasing stocks which have already run into stratosphere. try to pick ones which seems to have started a new move and which allows you to place a relatively smaller stop loss.
- You should have a trading portfolio.
- Very accurately measure the risk you assume in every trade.
- Do NOT put too much money in one trade.
- Do NOT use excessive margin.
- Try not to quit your winners before your pre planned targets are achieved.
- Never hesitate to exit a stock when stop loss is hit. (stop loss is reverse the reason of entry into a trade)
- Be clear on why you are entering a trade and this will help you know when that reason is failing.
* I prefer http://www.amibroker.com
** I prefer http://eagleeyetrading.blogspot.com
*** Elliott wave is a theory which helps put the market movement in perspective.
It enables the trader to find potential targets and so on..
If you need training on such trading concepts try out EagleEye technical trading Seminar
Note: http://www.eagleeyetrade.com is a company established to provide consultancy to traders.
At EagleEyeTrade, BreakoutTrading remains an important focus area.
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