One question I was asked recently is “Why are breakouts so special?” To me, there are several reasons:
1) They set up frequently, so I’m not waiting around too long for a trade to set up
Imagine having a trade entry that only triggered every few weeks and you missed it. If that was the bread and butter of your trading then that’s a long time to wait.
2) They are a momentum indicator, so buying breakouts is buying into a stock with momentum
Momentum has been a winning strategy in the 2010s. It’s still a winning strategy now. But even value stocks, to move higher, need to break out.
3) Any stock that makes a new high has to break out of its previous range, and so by searching for breakouts we are on the hunt for big winners
The best stocks on the market typically tend to trend upwards. Breakouts put some of the best stocks on the market in front of us. In times when the market has rebounded as it has over the last few months, this has been great to get into some nice moves as we’ve seen in this column.
Finding breakouts with Stockopedia
There is a way to find potential breakouts with Stockopedia. Ideally, we want to find breakouts before they have broken out, so that we can prepare ourselves to get onboard. Being alerted to a stock that has broken out after the close, when the breakout happened at 10am and is now already up 10%, is of little utility.
Here is a screen which runs the price vs the 52 week high.
What this screen does is look at a certain percentage that the stock is away from its 52 week price high.
In this screen, it shows stocks that are within 5% of the 52 week high. That means they’re close, and we can keep an eye out for them. One way of doing this can be by using a stockbroker. Many brokers allow for price alerts and alarms.
One broker that has a good alert system for this is IG Index. We can set alarms for when the price hits a certain mid-price, ask price, or bid price. In the past, I have used this on the web dealer platform to use price equal to or greater than a specific ask price. I…
