10 TIPS ON PRICE AND VOLUME ACTION FOR BREAKOUTS

10 TIPS ON PRICE AND VOLUME ACTION FOR BREAKOUTS Technical trading based on observation of price and volume. You are directly observing the supply and demand of a stock. Although fundamentals are important, technicals are much more important. Trading on fundamentals alone will guide you to high potential stocks, but you don't know when to buy or sell them. That's why knowledge in technical analysis is so important. Here are a 5 tips about price action in a stock: Volatility contraction is a key You always want to buy new, fresh breakouts. If the stock made a 15% move before and without any kind of consolidation, wait! The volatility must contract and the stock must rest before the next upmove. Volatility contraction is visible in the chart if the price goes sideways above a days to weeks. If you see a sideways range about 10-15 days and the daily price range decreases, observe the stock for a breakout. Also look at the volume: you want to see a dry up in the volume. Strong price move at the day of the breakout The buyers must signalize clearly that they are in control. If a stock breaks out with a minor 1-2% move, avoid it. You want to see 3-5% moves on strong volume. I know it sound strange to buy a stock if it's already up 3-5%. But you want to see confirmation and not make a bargain. Strong gains and strong volume show demand. You don't want to own stocks that nobody wants to buy. Avoid too large moves and gap ups If a stock is already broken out and the gain >7%, avoid it and wait for another entry opportunity. The chance-risk-ratio is too bad and the possibility for a pullback too high.  The same is true for gap ups. If the distance between the low and high is more than 7%, avoid to buy a gap up. Risk control is more important than profits. Wait for a consolidation over 1-3 weeks and buy the next breakout opportunity. Price should run through resistance The best way to buy a breakout is if the price runs through a resistance level. That means that the low of the day should be below the breakout level. Price starts inside the consolidation and then breakout to a new high. For gap ups you want to see a similar behavior. A stock must gap up through a valid chart pattern with strong volume to a new high. Then it's buyable. Expect a retest or base on base pattern The strongest stocks break out and never retest the breakout line. Such strong stocks are rare. A lot of stocks retest their base after they broke out or build another base before they run higher. That often depends on the market environment. If that is weak, expect retests and base on base patterns. ‌ ‌ Here are a 5 tips about volume action in a stock: Look at the weekly chart Often the accumulation of a stock is easily visible in the weekly chart. You want to see large volume bars on up-weeks. Remember: A successful breakout is often a continuation in an existing uptrend. If you see a large volume bar of e.g. 300% or more of the average 10 week volume, put the stock on your watchlist. Often that's the beginning of big uptrend. Such a volume explosion signalizes a change in the reception of institutions. They start to buy the stock and often they need weeks to months to finish their trading positions. Strong volume on the breakout Price and volume should go hand in hand. You want to see strong price moves (3-5%) and strong volume (>150% above the 50 day average volume). If they don't go hand in hand, avoid the breakout. Example: 1% price move and 300% volume or 6% price move and 75% volume are no good signs. Strong volume is confirmation of high demand and it absorbs supply. The stronger the volume the better. Volume contraction is good During a consolidation it's preferable to see a contraction in volume. It signalizes that institutions hold their trading positions and don't sell them. Sometimes you see a sharp dry up of volume in a consolidation. That's a good sign and often a breakout starts after that. I always look at the volume in a consolidation. I want to see a dry up if the price is moving sideways or down. That gives me confidence that market participants are holding their positions and maybe will add to them if another rally starts. Increasing volume after breakout The strongest breakouts show a rise in volume in the days and weeks after the breakout. More and more market participants buy positions and accelerate the rally. If you don't see that, it's not a problem, but you want to observe the stock more closely for a potential reversal. If I see e.g. 3 weeks of above average volume after a breakout, it gives me confidence. After a consolidation I will add to my position. Avoid exhausting volume If you see strong volume on weak days after the breakout, be cautious. It could be a sign that institutions are selling the breakout. Example: Weak day with -3% and 175% volume! Price and volume must always be observed. It gives you clues about the activity in a stock. Remember: big institutions, which are owning thousands or millions of shares, can only sell in high volume situations. If you see high volume and no price action, it's often a sign of exhaustion and a potential reversal. ‌ ‌ ‌ ‌ ‌