{"id":5946,"date":"2019-12-30T10:51:50","date_gmt":"2019-12-30T15:51:50","guid":{"rendered":"https:\/\/morpheustrading.com\/blog\/?p=5946"},"modified":"2022-04-06T15:04:58","modified_gmt":"2022-04-06T19:04:58","slug":"breakaway-gaps","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/","title":{"rendered":"How To Score Monster Gains From Trading Breakaway Gaps"},"content":{"rendered":"<h1 id=\"mntl-sc-block-callout-heading_1-0\" class=\"comp mntl-sc-block-callout-heading mntl-text-block\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-5984\" src=\"https:\/\/new.morpheustrading.com\/blog\/wp-content\/uploads\/2019\/12\/gaps-1024x819.png\" alt=\"breakaway gap up\" width=\"640\" height=\"512\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2019\/12\/gaps-110x88.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2019\/12\/gaps-300x240.png 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2019\/12\/gaps-768x614.png 768w\" sizes=\"auto, (max-width: 640px) 100vw, 640px\" \/>Some of our biggest winning stock picks result from buying the &#8220;breakaway gap&#8221; chart pattern.<\/h1>\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-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#In_this_post_we_walk_through_an_actual_29_winning_breakaway_gap_trade_to_show_you_how_to_easily_find_and_profit_from_trading_breakaway_gaps\" >In this post, we walk through an actual +29% winning breakaway gap trade to show you how to easily find and profit from trading breakaway gaps.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#How_To_Find_A_Breakaway_Gap_Pattern\" >How To Find A Breakaway Gap Pattern<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#5_Signals_To_Find_The_Best_Breakaway_Gap_Ups\" >5 Signals To Find The Best Breakaway Gap Ups<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#How_We_Gained_29_From_A_Breakaway_Gap_Trade_In_Everquote_EVER\" >How We Gained +29% From A Breakaway Gap Trade In Everquote ($EVER)<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#Breakaway_Gap_Identification\" >Breakaway Gap Identification<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#Finding_The_Low-Risk_Buy_Entry_For_Swing_Trading\" >Finding The Low-Risk Buy Entry For Swing Trading<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#Trade_Management_For_Maximum_Profit\" >Trade Management For Maximum Profit<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#Exit_Analysis\" >Exit Analysis<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#Top_Tips_For_Trading_The_Breakaway_Gap\" >Top Tips For Trading The Breakaway Gap<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/morpheustrading.com\/blog\/breakaway-gaps\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"comp mntl-sc-block-callout-heading mntl-text-block\"><span class=\"ez-toc-section\" id=\"In_this_post_we_walk_through_an_actual_29_winning_breakaway_gap_trade_to_show_you_how_to_easily_find_and_profit_from_trading_breakaway_gaps\"><\/span>In this post, we walk through an actual +29% winning breakaway gap trade to show you how to easily find and profit from trading breakaway gaps.<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p dir=\"ltr\">A breakaway gap occurs when the opening price of a stock or ETF gaps above technical price resistance (gap up) or below support (gap down).<\/p>\n<p dir=\"ltr\"><a href=\"https:\/\/www.investopedia.com\/terms\/b\/breakawaygap.asp\" target=\"_blank\" rel=\"noopener noreferrer\">Breakaway gaps<\/a> frequently occur early in the start of a trend and show conviction in the direction of the new trend.<\/p>\n<p dir=\"ltr\">The breakaway gap chart pattern can yield <em>monstrous<\/em> gains for momentum swing traders, but only with a clear understanding of the specific buy signals and the proper time to enter.<\/p>\n<p dir=\"ltr\">Continue reading to find out exactly how to recognize a breakaway gap and when to buy it&#8211;based on our +29% gain in Everquote ($EVER), a recent <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\"><em>Wagner Daily<\/em><\/a> stock pick.<\/p>\n<h2 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"How_To_Find_A_Breakaway_Gap_Pattern\"><\/span>How To Find A Breakaway Gap Pattern<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p dir=\"ltr\">A breakaway gap up can be an <em>extremely<\/em> bullish signal IF the gap emerges from a valid basing pattern that is confirmed by bullish price and volume action.<\/p>\n<p dir=\"ltr\">Below are five specific signals to help you identify valid breakaway gap trade setups.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"5_Signals_To_Find_The_Best_Breakaway_Gap_Ups\"><\/span>5 Signals To Find The Best Breakaway Gap Ups<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ol>\n<li>A breakaway gap should be preceded by a valid <a href=\"https:\/\/www.morpheustrading.com\/blog\/best-stock-breakouts\/\" target=\"_blank\" rel=\"noopener noreferrer\">basing pattern<\/a> <em>at least four to five weeks<\/em> in length. The longer the consolidation, the more powerful the breakaway gap may be.<\/li>\n<li>Volume on the gap day should be at least three times (300%) greater than average (based on 50-day average volume). In many cases, especially with small and mid-cap stocks, volume may even surge to five to ten times greater than average.<\/li>\n<li>A breakaway gap up should open <em>at least<\/em> 4-5% above the prior day&#8217;s close&#8211;some of the best gaps are 5-10% higher or more. However, an opening gap of more than 30% is a bit too much and could lead to a few months of chop, rather than immediate upside follow-through. <a href=\"https:\/\/new.morpheustrading.com\/blog\/swing-trading-vs-day-trading\/\" target=\"_blank\" rel=\"noopener noreferrer\">Swing traders<\/a> don&#8217;t need to buy on the gap day, so we have the luxury of waiting to see price and volume action before entering.<\/li>\n<li>The opening price of the gap day should be above the high of the base of consolidation (resistance). However, an opening gap <em>slightly<\/em> below the high of the base may still be bought IF the move is confirmed by price and volume.<\/li>\n<li>The closing price of the gap day should be above the opening price, or at least near the open. We generally avoid breakaway gaps where the closing price is well below the open or the gap is filled.<\/li>\n<\/ol>\n<h2 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"How_We_Gained_29_From_A_Breakaway_Gap_Trade_In_Everquote_EVER\"><\/span>How We Gained +29% From A Breakaway Gap Trade In Everquote ($EVER)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Breakaway_Gap_Identification\"><\/span>Breakaway Gap Identification<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p dir=\"ltr\">In the November 19 issue of our nightly <strong><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\">stock picking report<\/a><\/strong>, we shared the following commentary and chart with subscribers:<\/p>\n<p dir=\"ltr\">&#8220;There is one new buy for Tuesday&#8217;s session in $EVER.<\/p>\n<p dir=\"ltr\">$EVER&#8217;s breakaway gap up on 10x average volume is a big-time buy signal. The current pullback looks to have found some support from the close of the initial gap-up day. We are setting a (buy) stop order just above Monday&#8217;s close.&#8221;<\/p>\n<p dir=\"ltr\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/lh4.googleusercontent.com\/i3EaHJbsh-2cxbU8I0dmBciV-Gb3Uv5EjdzAa4ZVPJS76Bysy9BZOEFRT7CC5YdNLHwT763UvdfTjF887PB_Lh9gNcjCZK_PMq1MDHGoK3XwLmC9hLKn1I7dTm3YGJIhvhQONhTH\" alt=\"$EVER daily\" width=\"624\" height=\"560\" title=\"\"><\/p>\n<p dir=\"ltr\">Let&#8217;s look at how this chart confirmed all five signals for a breakaway gap setup:<\/p>\n<ol>\n<li>$EVER formed a valid, <strong>six-week basing pattern<\/strong> (from Sept. 16 to Nov. 4) prior to the breakaway gap up.<\/li>\n<li>Always one of the <em>most important<\/em> signals, volume on the gap day was more than <strong>ten times (1000%) the average daily volume.\u00a0<\/strong>It was also the largest volume spike since $EVER went IPO.<\/li>\n<li>Opening price on the gap day was approximately <strong>20% higher than the prior day&#8217;s close. <\/strong><\/li>\n<li>Opening price on the gap day was <strong>above the high of the base <\/strong>of consolidation.<\/li>\n<li>Closing price on the gap day was <strong>well above the opening price<\/strong> (in the top third of the intraday range).<\/li>\n<\/ol>\n<h3 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Finding_The_Low-Risk_Buy_Entry_For_Swing_Trading\"><\/span>Finding The Low-Risk Buy Entry For Swing Trading<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p dir=\"ltr\">We knew Everquote had <em>explosive potential<\/em> because the stock convincingly ticked the boxes of all five signals on the gap day.<\/p>\n<p dir=\"ltr\">However, we needed to patiently wait for a relatively low-risk entry point to develop.<\/p>\n<p dir=\"ltr\">Two weeks after the breakaway gap, notice the price of $EVER pulled back to near-term support of the rising 10-day moving average (on declining volume).<\/p>\n<p dir=\"ltr\">This produced a low-risk entry point on November 18, with a buy trigger above the November 15 high.<\/p>\n<p dir=\"ltr\">Alternatively, an equally solid buy entry could be made on November 19, either on the open or above the previous day&#8217;s high.<\/p>\n<p dir=\"ltr\">The official buy entry for this <a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\"><strong><em>Wagner Daily<\/em><\/strong><\/a> swing trade triggered on November 19.<\/p>\n<p dir=\"ltr\">The price then followed through <em>immediately <\/em>after our entry, which is nearly always an extremely positive sign.<\/p>\n<h3 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Trade_Management_For_Maximum_Profit\"><\/span>Trade Management For Maximum Profit<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p dir=\"ltr\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/lh3.googleusercontent.com\/hEoKywAOV1bbi_S9DvFtdZaNVKzd4JSl7lde7cmDm5VdKKRx6s0bb_ONBh9dTlvO5aqtszi-EbapoXv6_ZKpBoMvpz3jhStgDS4l0SS-htXMrkK0DEGFeXNqqeyf1Sw78aCqstji\" alt=\"\" width=\"624\" height=\"484\" title=\"\">As shown above, $EVER zoomed steadily higher after entry, staying well above the 10-day moving average and our protective stop price.<\/p>\n<p dir=\"ltr\">We sold roughly one-third of our position into strength for a <strong>+29% gain on December 3.<\/strong><\/p>\n<p dir=\"ltr\">With such a massive advance just nine days after our entry, it made sense to lock in the profit on at least a <em>partial <\/em>position.<\/p>\n<p dir=\"ltr\">Everquote peaked right after our first exit, then began pulling back from the highs.<\/p>\n<p dir=\"ltr\">A massive shakeout ensued on December 11, prompting us to alert subscribers that we would be selling another third of the position the next day (into strength of the bounce).<\/p>\n<p dir=\"ltr\">We ended up scoring a +16% gain with this second exit on December 12.<\/p>\n<p dir=\"ltr\">We currently<strong> remain long the final third<\/strong> of the position with a protective stop just below the low of the December 11 shakeout.<\/p>\n<h3 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Exit_Analysis\"><\/span>Exit Analysis<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p dir=\"ltr\">Looking back, our first sell point (Dec. 3) was a proactive judgment call to lock in some handsome gains after an explosive advance.<\/p>\n<p dir=\"ltr\">Our second exit point was <em>not <\/em>ideal, as we sold on a bounce after giving back a little more than we should have during the sharp pullback off the highs.<\/p>\n<p dir=\"ltr\">Despite seventeen years of honing our winning <a href=\"https:\/\/morpheustrading.com\/best-swing-trading-strategy\" target=\"_blank\" rel=\"noopener noreferrer\">swing trading strategy<\/a>, not <em>all<\/em> decisions we make as traders are the best ones.<\/p>\n<p dir=\"ltr\">To be a successful trader, you must check your ego at the door, then continually <strong>focus on learning and trying to improve every day.<\/strong><\/p>\n<h2 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Top_Tips_For_Trading_The_Breakaway_Gap\"><\/span>Top Tips For Trading The Breakaway Gap<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>Pay attention to where the stock closes on the gap-up day. Strong stocks that follow through to the upside often find support at the closing price of the original gap up. It is a bullish sign if they do, as was the case with $EVER.<\/li>\n<li>A breakaway gap up stock should find support at its first test of the 10-day moving average if momentum is strong. If the 10-day moving average does not hold, then we would look for the 20-day exponential moving average to provide support after a few weeks of chop.<\/li>\n<li>We generally try to limit breakaway gap trading to stocks that also have strong earnings and revenue growth. This increases the odds of institutional accumulation powering the stock price higher.<\/li>\n<li>Check out our previous blog <a href=\"https:\/\/new.morpheustrading.com\/blog\/breakaways-gaps\/\" target=\"_blank\" rel=\"noopener noreferrer\">post<\/a> on breakaway gaps for additional tips and another real trade example.<\/li>\n<\/ul>\n<h2 dir=\"ltr\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p dir=\"ltr\">Breakaway gap ups should always be monitored by swing and position traders for low-risk entry points because they can be quite explosive.<\/p>\n<p dir=\"ltr\">Use the five signals above as a checklist to confirm the validity of a breakaway gap chart pattern, then patiently wait for a low-risk entry point on a pullback to near-term support.<\/p>\n<p dir=\"ltr\">Always use protective stops and trail them higher to minimize risk and maximize profit as the trade moves in your favor.<\/p>\n<p dir=\"ltr\"><em><a href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Subscribe now<\/strong><\/a> to The Wagner Daily newsletter to be alerted to the next hot breakaway gap trade setup on our radar.<\/em><\/p>\n<p dir=\"ltr\">\n<div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Some of our biggest winning stock picks result from buying the &#8220;breakaway gap&#8221; chart pattern. In this post, we walk through an actual +29% winning breakaway gap trade to show you how to easily find and profit from trading breakaway gaps. A breakaway gap occurs when the opening price of a stock or ETF gaps [&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-5946","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5946","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=5946"}],"version-history":[{"count":22,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5946\/revisions"}],"predecessor-version":[{"id":6000,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/5946\/revisions\/6000"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=5946"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=5946"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=5946"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}