{"id":4990,"date":"2019-07-24T12:00:53","date_gmt":"2019-07-24T16:00:53","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4990"},"modified":"2022-04-06T15:04:58","modified_gmt":"2022-04-06T19:04:58","slug":"tips-best-breakout-stocks","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/","title":{"rendered":"5 Tips For Buying The Best Breakout Stocks (With Less False Signals)"},"content":{"rendered":"<h3><strong><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-4993\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2017\/05\/tips.png\" alt=\"tips\" width=\"300\" height=\"300\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/05\/tips-110x110.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/05\/tips-120x120.png 120w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/05\/tips-144x144.png 144w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2017\/05\/tips-50x50.png 50w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/strong><\/h3>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#The_following_blog_post_was_originally_published_on_May_1st_2017\" >The following blog post was originally published on May 1st, 2017.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#Buying_a_range_breakout_is_a_popular_stock_trading_strategy_but_which_breakout_stocks_have_the_best_chance_of_following_through_for_monster_gains\" >Buying a range breakout is a popular\u00a0stock trading strategy, but which breakout stocks have the best chance of following through for monster gains?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#Continue_reading_to_learn_five_valuable_tips_that_will_help_you_buy_the_best_breakout_stocks_with_less_false_signals\" >Continue reading to learn five valuable tips\u00a0that will help you buy the best breakout stocks (with less false signals).<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#5_Tips_For_Buying_The_Best_Breakout_Stocks_With_Less_False_Signals\" >5 Tips For Buying The Best Breakout Stocks (With Less False Signals)<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#1_Be_wary_of_wide_bases\" >1. Be wary of wide bases<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#2_Use_caution_with_V-shaped_patterns\" >2. Use caution with V-shaped patterns<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#3_Shallow_corrections_are_best\" >3. Shallow corrections are best<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#4_Aim_for_early_entry_points\" >4. Aim for early entry points<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#5_Use_the_Relative_Strength_Line_for_confirmation\" >5. Use the Relative Strength Line for confirmation<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/morpheustrading.com\/blog\/tips-best-breakout-stocks\/#NEWR_%E2%80%93_Poised_For_The_Best_Breakout\" >$NEWR &#8211; Poised For The Best Breakout<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"The_following_blog_post_was_originally_published_on_May_1st_2017\"><\/span>The following blog post was originally published on May 1st, 2017.<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>We periodically like to go back to older Morpheus Trading Group blog post and articles to revisit certain trade strategies for relevant tips and insights.<\/p>\n<p>In revisiting the following post, our goal is to shed light on great industry insights and improve upon any of your current trading strategies.<\/p>\n<p>We hope you gain some valuable trading insights and strategies with the following article that&#8217;ll help you buy the best breakout stocks. Happy Trading!<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Buying_a_range_breakout_is_a_popular_stock_trading_strategy_but_which_breakout_stocks_have_the_best_chance_of_following_through_for_monster_gains\"><\/span><strong>Buying a range breakout is a popular\u00a0stock trading strategy, but which breakout stocks have the best chance of following through for monster gains? <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<h3><span class=\"ez-toc-section\" id=\"Continue_reading_to_learn_five_valuable_tips_that_will_help_you_buy_the_best_breakout_stocks_with_less_false_signals\"><\/span><strong>Continue reading to learn five valuable tips\u00a0that will help you buy the best breakout stocks (with less false signals).<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The wide popularity of breakout stock trading is owed to the simplicity of the concept &#8212; <em>a stock that is range-bound must eventually &#8220;break out&#8221; in order to move higher.<\/em><\/p>\n<p>Breakout stock trade setups are relatively easy to spot when <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">scanning<\/a>\u00a0charts, but you may need to deal with a high percentage of false buy signals if you do not have objective guidelines to follow.<\/p>\n<p>In this article, we will share with you a handful of simple rules we discuss\u00a0a few techniques to help reduce the number of false breakouts.<\/p>\n<p>In order to improve your performance in breakout stocks, you should first look to trade <em>only<\/em> valid basing patterns.<\/p>\n<p>If you are not familiar with basing patterns, you may\u00a0<a href=\"https:\/\/www.morpheustrading.com\/blog\/best-stock-breakouts\/\" target=\"_blank\" rel=\"noopener\">press here<\/a> for a quick primer before proceeding.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"5_Tips_For_Buying_The_Best_Breakout_Stocks_With_Less_False_Signals\"><\/span>5 Tips For Buying The Best Breakout Stocks (With Less False Signals)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>In a recent blog post, we <a href=\"https:\/\/www.morpheustrading.com\/blog\/breakout-stock-newr\/\" target=\"_blank\" rel=\"noopener\">alerted<\/a> you to a potential breakout in New Relic ($NEWR) and highlighted several basing patterns on the stock chart.<\/p>\n<p>Now, we again use charts of $NEWR to demonstrate the five tips to improve your performance when buying breakout stocks.<\/p>\n<p>The first three tips below reference the first weekly chart that follows.<\/p>\n<h4><span class=\"ez-toc-section\" id=\"1_Be_wary_of_wide_bases\"><\/span><strong>1. Be wary of wide bases<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>The first base (A) is wide, with nearly a 50%\u00a0pullback\u00a0off the highs. \u00a0In general, patterns where the price corrects more than 30-40% off a recent high are <em>not<\/em> ideal. In this chart, we also see the\u00a0majority of that base formed well below support of its 40-week moving average, which is also not ideal. Since the rally off the lows of that base (~$20) shot the stock 90% higher to the $38 area, the stock probably won&#8217;t have much gas left in the tank to break out to new highs without <em>first<\/em> going sideways for at least several weeks.<\/p>\n<h4><span class=\"ez-toc-section\" id=\"2_Use_caution_with_V-shaped_patterns\"><\/span><strong>2. Use caution with V-shaped patterns<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>In the second base (B), the stock corrects about 27% off its high\u00a0and dips below the 40-week moving average again. \u00a0However, this dip below the 40-week MA\u00a0isn&#8217;t nearly\u00a0as bad as the prior base, and is not a deal breaker. \u00a0Nevertheless, the sharp run-up from the lows of the base to the highs in just four weeks (in January)\u00a0gives the pattern a V-shaped look.\u00a0 A V-shaped pattern, especially with a very quick move up the right side of the\u00a0base, is a red flag.\u00a0 We would have preferred the price action stall for a week or two to form a handle (short pause) before breaking above the prior high.<\/p>\n<h4><span class=\"ez-toc-section\" id=\"3_Shallow_corrections_are_best\"><\/span><strong>3. Shallow corrections are best<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>The correction in the third base (C) is shallow, with a pullback just 17% off the high.\u00a0 It is easily the tightest correction of the three, with several weeks of tight price action holding above its rising 10-week moving average.\u00a0 We also see the entire base forming above a newly rising 40-week moving average.\u00a0 This is the sort of basing action that frequently leads\u00a0to an explosive breakout. \u00a0Of course, we have no way of knowing for sure, but this is <em>the<\/em> breakout to buy (if the price breaks out above the range).<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2016\/170428NEWR1.png\" alt=\"MONTHLY \" title=\"\"><\/p>\n<h4><span class=\"ez-toc-section\" id=\"4_Aim_for_early_entry_points\"><\/span><strong>4. Aim for early entry points<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>As soon as a stock rallies above the high of its range, it prompts many breakout stock traders to buy the breakout at the most obvious point. However, you should instead consider buying a stock &#8220;early,&#8221; prior to its blatantly obvious breakout pivot. By getting an early entry, only within a tight base nearing a breakout level, you reduce your risk in the event of a false breakout. You can further reduce your capital risk by reducing the share size of your initial entry, then adding to the position when the breakout is confirmed (only add to a <em>winning<\/em> position).<\/p>\n<h4><span class=\"ez-toc-section\" id=\"5_Use_the_Relative_Strength_Line_for_confirmation\"><\/span><strong>5. Use the Relative Strength Line for confirmation<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Measuring a stock&#8217;s strength relative to the S&amp;P 500 is a reliable way to to confirm a bullish chart pattern, as explained in this <a href=\"https:\/\/www.morpheustrading.com\/blog\/relative-strength-trading\/\" target=\"_blank\" rel=\"noopener\">article<\/a>.<\/p>\n<p>The relative strength line is a technical indicator available on many trading platforms that helps confirm a stock&#8217;s true strength in current market conditions.<\/p>\n<p>The relative strength line used here is calculated by\u00a0diving\u00a0the price of $NEWR by the price of $SPY.\u00a0 This line is<em> not to be confused with\u00a0<\/em>the RSI indicator.<\/p>\n<p>The higher the reading of the relative strength line, the more bullish for the stock.<\/p>\n<p>If a breakout stock moves perfectly in sync with the S&amp;P 500, the relative strength line would move in step with the price of the stock.<\/p>\n<p>But what we&#8217;re really looking for is the\u00a0relative strength line to rally to new highs ahead of the price, which would offer a valuable clue\u00a0that the stock is quite strong.<\/p>\n<p>On the weekly chart of $NEWR below, the top half shows the price action of the stock, while the bottom half shows the relative strength line:<\/p>\n<p><strong>Point A &#8211;<\/strong> $NEWR has rallied almost 100% off the lows and is close to the prior high of $40 (~ $38.70).\u00a0 The relative strength line does not confirm the price, as it stops well shy of the prior high.\u00a0 $NEWR lagged the S&amp;P\u00a0during that advance.\u00a0 With the relative strength line not confirming after a 50% correction, point &#8220;A&#8221;\u00a0would <em>not<\/em> yet be an ideal time to buy the stock in anticipation of a breakout.<\/p>\n<p><strong>Point B &#8211;<\/strong> $NEWR breaks out in late January above the highs (point &#8220;A&#8221;).\u00a0 But, the price action is once again not confirmed by the relative strength line, which this time isn&#8217;t anywhere near the last high at point &#8220;A&#8221; (negative divergence).<\/p>\n<p><strong>Point C &#8211;<\/strong> $NEWR clearly shows a base with the most potential, forming a tight-ranged pattern above the rising 10-week MA.\u00a0 The relative strength line finally confirms the price action here, as the line has moved in step with the price action and has actually outperformed, making\u00a0a &#8220;higher high&#8221; at point &#8220;C&#8221; ahead of the price. THIS is what you want to see and indicates the stock may soon breakout of its tight range.<\/p>\n<p><img decoding=\"async\" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2016\/170428NEWR2.png\" alt=\" daily\" title=\"\"><\/p>\n<h3><span class=\"ez-toc-section\" id=\"NEWR_%E2%80%93_Poised_For_The_Best_Breakout\"><\/span><strong>$NEWR &#8211; Poised For The Best Breakout<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Applying your five new\u00a0tips for buying breakout stocks, the tight basing action and confirmation from the relative strength line suggest that $NEWR\u00a0could now be ready to stage a powerful breakout.<\/p>\n<p>Subscribing members are already long New Relic in <strong><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\"><em>The Wagner Daily<\/em><\/a><\/strong> newsletter, from earlier buy points of $38.60 and $39.50.<\/p>\n<p>Again, we have no definitive way of knowing if $NEWR will follow through with its breakout, but we believe the odds of a successful breakout are now in your favor.<\/p>\n<p>When buying breakout stocks, keep in mind that overall broad market health and volume analysis both remain factors to consider.<\/p>\n<p>Also, be aware that $NEWR is tentatively scheduled to report its quarterly earnings on May 9.<\/p>\n<p><em>What is your favorite tip for buying the best breakout stocks? Drop us a comment below to share your thoughts.<\/em><\/p>\n<p><center><script src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\" type=\"text\/javascript\"><\/script><!-- Footer of content --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 300px; height: 250px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"7002222565\"><\/ins><script type=\"text\/javascript\">\/\/ <![CDATA[ (adsbygoogle = window.adsbygoogle || []).push({}); \/\/ ]]><\/script><\/center><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The following blog post was originally published on May 1st, 2017. We periodically like to go back to older Morpheus Trading Group blog post and articles to revisit certain trade strategies for relevant tips and insights. In revisiting the following post, our goal is to shed light on great industry insights and improve upon any [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-4990","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4990","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=4990"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4990\/revisions"}],"predecessor-version":[{"id":11190,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/4990\/revisions\/11190"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=4990"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=4990"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=4990"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}