Take the Best Breakout Trades with 360° Analysis
Stocks sometimes move inside resistance areas, and once there is enough buying pressure, it breaks out; often starting a new upswing or maybe even a new uptrend.
There are specific breakouts that you can trade for a hefty profit. The successful breakout trades have some common characteristics. They need to provide entry at Low-Risk Buy Point. If the Stock is already up substantially from their resistance breakout, then the Long Entry may carry too much risk. To be successful, a Technical Breakout also has to be accompanied by Heavy Activity showing the presence of aggressive buyers. These are factors that you can quickly and unambiguously identify in a matter of seconds using CUE Technical Trading System running on Metastock (CUE Global) or Tradestation® (CUE Elite).
However, a technical breakout is not enough to take the best breakout trades. To choose only the best breakout trades, you need to find a Stock that is Fundamentally Strong and whose Industry is either healthy or is getting strong? How do you identify that easily? Using CUE Edge Industry Rotation, you can find Industry’s strength and weakness in Real-Time. And using CUE Vital Fundamental Analyst or CUE Stock Scorecard, you can instantly carry out a Stock’s Fundamental and Peer Analysis. Together, CUE Edge and CUE Vital or Scorecard gives you the power of a complete Fundamental Trading System.
Merck (MRK) High Activity Breakout from Base and out of Resistance in Daily Chart on 9th April 2018
How to identify the best Breakout trades in real life? Let us take a recent example. On 9th April, Merck (MRK), a Pharmaceuticals Stock broke out of the automatically drawn very smart trendline resistance (these are called Memory Resistance lines) with High Activity. Not only that. On the same day, the Stock’s Candle color changed to cyan that is Bullish. The Stock was also breaking out from a well-established base formed by Watermark Support Lines.
The breakout started near the beginning of the day. Looking at that, one might take the Long position using CUE Real-Time Fine Tune Chart that uses 5 or minutes interval. That would allow you to enter the trade at an even lower price. This entry technique is standard in CUE Trading and you may learn more on this from the many Weekly Market Roundups including this one.
MRK’s Fundamental and Industry Strength
Using CUE Scorecard, you can instantly carry out a Peer Analysis and check if MRK was/is Fundamentally Strong. Here is the result. MRK is not only Optimally Valued, but it is showing some amount of Earnings Growth in the recent quarters. It pays an excellent Dividend Yield %, has robust Earnings Quality. Among its peer Stocks, MRK has one of the best overall Fundamentals.
To check the Industry, you coudl use CUE Edge that shows Industry Rotation in Real Time or CUE Industry Scorecard that provides up to date end of day Industry Rotaiton Insight. Here, we have neutral characteristics. MRK belongs to Pharmaceuticals Industry. This is part of Health Care Sector. The Industry and Sector are lagging for a long time. And in recent period (say, last 5 days) neither improving or deteriiorating. Some long term investors may in fact start to look for Optimal Value Stocks at such times if they are breaking out of base and resistance. MRK fitted that profile.
What is the result of taking the MRK Long trade?
A long taken on 9th Apr when MRK broke out of Memory Resistance gave substantial profit. One of the traders we know took a Bullish position using Monthly Options Put Vertical (Sell MRK 57.5 Put and Buy MRK 55 Put; both with same expiry of 18th May; which ws just beyond the next earnings date of 1st May). That trade is Opened for a credit of 1.02 USD. As of today 17th Apr, the Vetical is trading at 0.40 USD. That is a substantial profit in six trading days. The same trade could be taken using Long Stock position.
What to do now with the profitable MRK trade?
MRK continues to be Bullish on both Weekly and Daily CUE Charts. Next Memory Resistance is at around 61.5. One may book at least partial profit then. And one may also put trailing Stop using Stock price as the Stop trigger. Protection Signal in CUE Technical Trading System immediately shows the current Stop Level for the Long position. The Stop Level is at 57.3 USD; well above the Entry price and therefore practically, this a guaranteed profitable trade from now onward.
Want a similar Breakout Trade on Today’s Date of 17th April?
That is not difficult. Using CUE Systems you could immediately identify such trades. Disney (DIS) for example. Here is the Technical Trading System chart showing the breakout. It is a Real-Time Daily chart; the day is not over yet. One may look out for high Activity. Combining Technicals, FUndamentals and Industry Rotation analysis, you may find this to be an attractive Stock to Buy.
Using CUE Fundamental Trading System (Edge, Vital or Scorecards) you could check out Disney’s Fundamental and Industry strength and decide to Buy or Stand Aside. We would not suggest Shorting Disney at this point. Would you?
Like this Breakout examples, you can find many other Breakout Trade Setup as well as Trend Following, Trend Reversion, Exhuasting and Sideways Market Setups using CUE Technical Trading System. You may learn more from our Education Center; open to the public and sereious traders like yourself.