Trading with Breakouts

1. Good consolidation before the breakout: Good consolidation can come as a tight trading range with well-defined support and resistance,a good consolidation near its high and a bullish pattern is a situation where buying the initial breakout often makes sense.
2. High relative volume at the breakout When a stock breaks out above the consolidation high the supply and demand picture often becomes clear. If the breakout occurs with an increase in volume it is confirmation that the demand for the stock was not satisfied during the consolidation phase and bulls are willing not only to pay higher prices but also to buy an increasing amount of stock at higher prices.
3. A clean breakout followed by bullish price action A clean breakout followed by bullish price action provides two forms of confirmation that the breakout will stay above the high. First, the quick and pronounced nature of the breakout demonstrates that the high was a significant price point, and second, the stock’s ability to continue trading above the breakout point shows that the bulls have the upper hand.
4. A bullish big picture Here are two simple conditions to consider in order to increase your success in buying breakouts with follow-through.
1. The daily trend should be positive.
2. The stock is trading above the prior day’s high.