5 Ways to Avoid False Breakouts

5 Ways to Avoid False Breakouts


– So one of my favorite setups and something I think you
should really be focusing on in 2019, 2020, and forward is looking for the best breakouts. Now, you can’t buy every breakout. You kind of line up as
many criteria as you can. And today I’m gonna talk about
five things you should avoid when it comes to buying a breakout. (upbeat music) Hey, everyone, Lead Trainer
with Stocks to Trade, Tim Bohen here. Be sure to subscribe and like the video to be notified as soon
as a new video drops. We do a lot of videos every week. I want you to be there as soon as it hits, especially to catch those live videos where we break down the charts realtime. So today, I’m gonna talk about
how to avoid false breakout. You can’t buy any stock that’s
at multi-week, multi-month, multi-year highs, but if
you avoid this criteria, you’re in much better position
to find that one breakout that does continue to
move through the day, through the week, through
the month, et cetera. So first thing I wanna
talk about is volume. I mean, price everybody
says I say this I stole it, but only price pays, you know. Price action is what matters, but really, really, really close behind. I mean, it’s a close second is volume. Look for high volume breakouts. If you’re buying a stock that this stock could be at all-time highs, 20-year highs, maybe even longer, but if it’s breaking out an
average or even below average or maybe slightly above average, you wanna try and avoid those, because odds there aren’t enough buyers to continue the move. Remember the stock market is about mania, it’s an auction. The more buyers, the
more eyeballs you have, the more likely that move is to continue. So if you’re just trading
that average volume, that’s telling you that there’s
probably not any new buyers. So tomorrow, when the stock is sideways, who’s there coming in to buy the stock the next day, the next week? So if you don’t or if you do trade breakouts without really high
volume, way above average, you’re gonna end up in a
lot of sideways stocks. Now, sideways isn’t a bad thing. You can always stop out for a small loss or a small gain or break even, but it can get frustrating over time. So, the tool I use in Stocks to Trade and this is in pretty
much any charting package. I look at the 60-day average volume and that gives me a good snapshot over 60 days, two months that, you know, if the stock I’m
looking to buy as a breakout, if it’s not trading double, five times, 10 times that 60-day average volume, I’m gonna look to avoid it. So, focus on volume and price, but don’t ever forget
to look for high volume. Second thing I want you to focus on is try not to buy breakouts that
don’t have news behind them. You know, you can run your
scans, you can do your charting and you can see these stocks that the charts are beautiful, okay? I say all the time you
should be looking at charts ’til your eyes bleed. Look, look, look, look
at all these charts, focus on the clean
charts and we do a lot of when I talk about clean and choppy charts, there’s a lot of videos in the archive you can check those out. But one of the biggest
things that happens is, if there’s no news, what is the potential just like I talk about volume, what’s the potential that more buyers are going to continue to step in? You want to have some meat, something that people get excited about. And I really want you to
focus on substantial news. That is earnings, okay? Earnings season, one of my favorite times, four times a year, as a new trader, you should be focusing on earning season. Look for those stocks,
with earnings today, trading on high volume. The other thing you want to look for is big name type stuff, something we always talk
about is cancer headlines. Or something that’s in
the headlines that day. So whatever is going on in the world, if a company releases a product, or a press release tied
to this big news event, that is something you
want to look to trade. Day traders move as a herd. So really look for those
substantial things, avoid no news, avoid vague news, something I always kind of
mock is the press release where there’s a lot of shoulds,
and coulds, and woulds, and they don’t name the partner, there’s no dollar amounts, it’s just kind of fluffy pie in the sky. If you’re looking for
consistent breakouts, avoid that type of
news, focus on earnings, and big name contract wins,
products, and sectors as well. Third thing I want you to
take into consideration is, try to avoid stocks that
aren’t in a hot sector. Listen, one of the great
things about the stock market is you will never get bored, okay? Every single day you show up, there’s a story, there’s a theme, there’s something going on. And almost always, there’s a hot theme. So if you can start to
line these things up, high volume, has news, breaking out, and it’s in a hot sector,
whatever that sector is. Low floats, medical devices, bitcoin, weed, cancer, Ebola, all these things that have
moved stocks in the past. You’re building that case and the more things you
can line in your favor, remember if you’re under the PDT, you’ve only got three trades a week. You’ve got to focus on
the best of the best. So focus on those stocks, when
you’re ticking off your items look for hot sectors, look
for hot themes of the day, or the week, the month, et cetera. Fourth thing to avoid, and this really applies
to afternoon breakouts, which are my favorite breakouts, is try to avoid buying that stock to gap it overnight if it’s under VWAP. A lot of these stocks that have the first three components I talked about; volume, sector, news. They’ll spike early, and then they’ll kind
of fade through the day. Now check out VWAP,
volume-weighted average price we’ve got a ton of videos on it. It’s my favorite technical indicator. But you might be tempted to buy that stock because you’ve ticked
off those three boxes. But if it’s under VWAP, late in the day, I’m telling ya, most of the time, that stock’s probably going
to open weak the next day. Then it might bounce, midday, late day. So what I want you to avoid, is buying that stock under VWAP, because you might just be able to buy it at a better price the next day. So not a hard set, never-do, but I want you to just kind of sit there as you’re thinking about things, okay? I’m going to put my hard
earned money on the line, I’m going to risk money, because you can always lose in a trade, do I really want to buy
this stock, this breakout, when it’s under VWAP into the afternoon? Next thing, and this
is a simple thing but, look at multi-year breakouts, look at your one year charts, your five year charts,
your 10 year charts. And sometimes, well and
actually I watch the big things I want you to look at that one year chart, because something I noticed
with a lot of newer traders, they might be looking at a five day chart, a one month chart, a 90 day chart, and on that timeframe,
it looks like a breakout. But you’ve got to zoom out, and look at that one year,
that two year, that five year. I typically don’t go beyond five year, by that point, the cycle is completed. But look for resistance points
on that multi-year chart. I’m not saying you have
to go back behind five. But go to one, go to two,
go to three, go to five. And look for, especially
if you’ve got an area of long-term consolidation. Say it’s two years ago, the chart looks clean on the one year, but it spiked into that consolidation area from two years ago and
it’s say, five dollars, stock spiked to five dollars, and there was a lot of consolidation and resistance that built there. That’s something you want to avoid, because odds are if that
consolidation area is built the stock dropped, ground back, you’re going to have a lot of sellers that are finally back to break even, they’re going to say “Man, I’ve held this stock for two years, “I’m finally back to break
even, I’m gonna sell.” And then that creates a failed breakout. So biggest point, last point, focus on those multiple timeframes. Don’t look, listen, if
you’re looking to overnight or swing trade a stock, and you’re looking at a one
month chart or two month chart. You’re going to buy a
lot of false breakouts and you’re going to get frustrated, and say buying breakouts doesn’t work. But if you avoid these
five things I talked about, you’re potential for
success is much higher. So let me know in the comments below. Have you bought breakouts? Has it worked for you or hasn’t it? Buying breakouts is one of
my favorite things to do in this post-2016 world. So many of these stocks
hit those key levels and keep going. So give me your comments
below on breakouts. And I look forward to seeing
you in the next video. Thanks for watching our video, be sure to comment below with
any trading related questions we love answering your questions. Also, like and share with your friends and be sure to subscribe to be notified as soon as our next video hits. And if you’re looking to
expand your trading knowledge, don’t forget to check out
all of our other videos. And be sure to click the trial below check out stocks trade, I
think it is one of the best most rapidly advancing
software that’s out there. Be sure to check out our trial. (upbeat music fades)

7 Comments

  • StocksToTrade

    October 30, 2019

    Have you bought breakouts? Has it worked for you?

    Reply
  • Faulk Smash

    October 30, 2019

    Excellent video. Condenses lots of good tid-bits from older videos into one short but sweet video.

    Also props for not forcing the STT platform down people’s throats. I get that you’re behind the program (well, the face of the program) but every time you mention it, you mention that there’s other alternatives out there. You did it in this video, you’ve done it in the past and even recommended some free resources, etc. It’s a small thing, but it gives you points (in my books) in the “transparency” department. I’ve been following for months now (coming up on a year) so I know you’re not a sleaze ball, but I bet a lot of new viewers appreciate the “non slime all salesmen” approach. 😀

    Although from the trials I’ve used of Stocks To Trade, it really is an aesthetically pleasing (and useful as hell!) platform! 🙂

    Reply
  • Emotional Trader YT

    October 30, 2019

    Hard Stops = Stress Free

    Reply
  • Mitch Bromwell

    October 30, 2019

    Tim,
    Great Information ⏰ and timing. 📉📊📈 STT the key to success..🗝

    Reply
  • Trade Wolf

    October 30, 2019

    Breakouts are awesome, thanks for that info.

    I was wondering how much woukd i have to spend as a student on a month to month basis and my initial investment for my broker or is STT a broker, im a little confused. So monthly expense on STT
    Initial investment to trade and the coaching as a student?

    Reply
  • gaurang Patel

    October 30, 2019

    there is nothing concrete in this video…only plain talks…..why dont u show something on charts…about ur definitive breakout….rathen than running commentary

    Reply
  • gaurang Patel

    October 30, 2019

    in all markets day by day traders are increasing..resulting into unusual out of the box movement in prices……its always the bigger money that wins…

    Reply

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