{"id":2807,"date":"2013-05-21T13:55:32","date_gmt":"2013-05-21T17:55:32","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=2807"},"modified":"2022-04-06T15:05:06","modified_gmt":"2022-04-06T19:05:06","slug":"top-5-qualities-stock-breakouts","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/top-5-qualities-stock-breakouts\/","title":{"rendered":"Top 5 Qualities Of The Best Stock Breakouts – Trading Strategy"},"content":{"rendered":"

When buying breakouts of growth stocks, one of the three main techniques of our momentum swing trading system<\/a>, there are certain technical criteria we look for because all the best stock breakouts share the same traits.<\/p>\n

Last week (May 17), we sold a breakout swing trade in Pandora Media ($P) for a net gain of 14% with a holding period of less than three weeks.<\/strong>\u00a0Prior to buy entry on May 1, the stock possessed the top 5 technical traits for breakout buying<\/em>, which we have listed below (see the first chart below for a visual reference):<\/p>\n

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  1. High volume gap –<\/strong><\/span> On March 8, the stock gapped sharply higher to close the day with an 18% gain. Most importantly, volume spiked to approximately 700% its 50-day average level. When stocks score such a massive one-day gain that is accompanied by a monster surge in volume, it is undeniably the footprint of institutional buying (which we always want to see on the long side).<\/li>\n
  2. 20-day MA > 50-day MA –<\/strong><\/span> During the formation of the base of consolidation that followed the March 8 gap, the 20-day exponential moving average remained above the 50-day moving average the entire team. This is a sign that the uptrend technically remains solid.<\/li>\n
  3. Tight base above 50-day MA –<\/strong><\/span> As $P was forming its base, the 50-day moving average was rising up to meet the price. When that occurred, the stock touched and held key support of its 50-day MA several times. Simultaneously, the base began tightening up, which is typically a precursor to a breakout.<\/li>\n
  4. First base after reversal off lows –<\/strong><\/span> This was the first real base that $P formed since its big reversal off the late 2012 lows (around $8). The first stage bases often have the highest odds of a successful breakout because the momentum of the new uptrend is just ramping up.<\/li>\n
  5. IPO –<\/strong><\/span> Although not a requirement of breakout setups, one bonus is that $P recently launched as an IPO<\/a> in 2011. If strong earnings growth and momentum exists, IPOs have a tendency to make explosive moves because of the lack of overhead supply (resistance).<\/li>\n<\/ol>\n

    Below is the daily chart of $P, as it looked at the time of our breakout buy entry:<\/p>\n

    \"$P<\/p>\n

    After we determined that a valid base of consolidation had formed, we then focused on determining exactly when to buy. The technical factors that helped us drill down to a precision entry point were:<\/p>\n