Archives for December 2014

Trading Breakout Patterns

Find Great Stock Market Trades with Trading Breakout Patterns

Looking back at older blog posts in order to dislodge my writer’s block I came across a very good blog article where I discuss trading breakout patterns. While this information is dated it is worth discussing again as it depicts a very good example of how you can find great stock market trades with trading breakout patterns. Using the candlestick patterns to interpret the results of a breakout situation offers a massive advantage to the Candlestick investor.

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  • Realizing when a breakout is about to occur AND knowing what to do before you miss the boat or things get out of hand
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One main advantage of Candlestick patterns is that they can detect dramatic changes in investor sentiment. One of the main profit potentials for making money on big stock market trades is being able to analyze the investor sentiment upon a stock “breakout” situation.

A breakout is the dramatic movement of a stock market trade moving out of its usual trading area. It also has the component of a significant percentage increase in its standard daily trading range. This is usually complemented by a massive increase in volume. A breakout is typically the result of an unforeseen event or surprise result of a company’s operations. This can be affected by both internal as well as external elements. A key example was Invision Technologies, the company that manufactures the luggage scanning machines at airports. 9/11 brought this company to the forefront. The major move, a tremendously large white candle in that stock price, far above its trading range for the previous six months, quickly revealed a firm change of investor sentiment towards this company. Breakouts, revealed using Candlestick patterns, immediately identify the stock market trades with huge percentage gains potential.

Other trading breakout patterns are frequently caused by new fundamental potentials within a company’s product potential. Whatever causes the new investor sentiment in a stock, the resulting candle or candles offer the information needed that would point to the upside strength of a new move in a stock price. Dynamic Materials Corp., BOOM, is a great illustration of a breakout. Note in the November chart, after trading for four years between $3 and $4 dollars a share, a news item produced a new investor view on this company. The fact that the white candle, that broke this stock out, closed near the high end of the trading range was an indication that upon this stock doubling in price in one day, investors still felt assured to stay in the stock and not take profits yet.


tradin breakout patterns image 1

Very seldom is a breakout on strong volume and a huge percentage price move going to instantaneously vanish and move back down to the previous customary trading area. However, not all breakouts immediately go up. An exceedingly large percentage, however, do eventually move to much higher ground after the initial breakout. For those investors who follow the stock picks over the past few years, AVII is one of our long-term holds. That “hold” recommendation was based on the potential future potential of this company’s products. But when will that potential become evident?

Seven trading days ago, an announcement about receiving patents formed a breakout in AVII. A stock that trades approximately 100,000 to 300,000 shares per day moved up over 100% on over 40 million shares traded. This was an intense change of ownership in the stock. The Bearish Harami the following day revealed that there would be some pullback action. Friday’s chart, as can be seen below, formed a Bullish Engulfing signal right at the base of the bullish candle that formed the breakout. The last six days of trading have seen an average of 5 million shares traded each day. The Bullish Engulfing signal reveals that the profit-taking selling may have stopped. (Remember this is an old chart being used for demonstrative purposes only!)


tradin breakout patterns image 2

The breakout definitely tells us something. There is now a different dynamic in this stock. As with most breakouts, the stock trend has an enormously high probability of moving higher, the first target testing the breakout candle high at approximately $4.20. However, over the long-term, meaning six weeks and greater, the upside potential could be higher. This is not an exact stock recommendation but it provides some educational background on breakout situations. AVII fits into that category.

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December 5 Daily Market Comments

Friday’s positive trading continues to confirm the T-line is going to act as support, the uptrend is in progress. The steady uptrend remains solid due to the fact that exuberant buying is not coming into this market, even after what would be perceived as good economic news in the job numbers Friday. Continue to stay long with some short positions in the portfolio. However, the persistent uptrend is providing some very good breakout patterns EXAS and UIHC.


December 3 Daily Market Comments

Although today’s trading is not showing any great vigor, it is illustrating the T-line is acting as support in the continued uptrend. The uptrend remains in progress provided there is not another hard selling day in the markets, confirming the evening star signal of the past few days. Currently, the bullish Harami of yesterday, being confirmed with positive trading today provides evidence the T-line continues to support the uptrend. Stay long but be nimble.


December 2 Daily Market Comments

Monday’s pullback has to be viewed as profit-taking PROVIDED Tuesday’s trading in the indexes does not come back down through Tuesdays close. Selling off through Monday’s close would merely indicate today’s buying was a bounce. Continue to stay long in charts that are not demonstrating sell signals. But remain diligent as far as where today’s trading finally closes.