Many traders often come to me with this question, " How can I know what stocks are going to break out in price?"
Indeed, if you can identify what stocks are going to break out in an explosive move, you can jump on these stocks to trade them before they start to move.
While it cannot be denied that this is a trading technique, and have elements of speculation, we can use technical analysis to help us nail most of these moves by using performance studies on price and volume.
There is a predominant school of thought that volume preceeds price. In other words, we will see an increase in volume of a stock before its price starts to increases or moves up. Some call this the On Balance Volume outbreak.
Irregardless of what technical analysis software you use, you can even have records of price and volume and put them onto a spreadsheet to compute the changes in volume and price of a stock or an index to detect these volume outbreaks.
Many traders have found it is very profitable for them to detect stocks that have undergone a surge in volume of around 50 times its average volume of the past 25 days, but with only a slight increase of around 7% in price.
When you have a situation like this, traders have observed that the stock's price will soon moves up following the oubtreak in the stock's volume.
Tweak this technique to your stocks or your trading vehicle and customize it to suit your risk tolerance.
You will find this to be one profitable arsenal that you can add to your box of trading tools!
As always, trading carries risk. So consult your broker, private client adviser or financial planner if you wish to trade.
For more trading ideas, visit Peter Lim's website at http://signaldot.poolofwisdom.com or at his free Online Guide to Swing Trading http://www.online-guides.info/Swing-Trading/
About the author:
Peter Lim is a Certified Financial Planner and the author of the ebook "Swing Trading for Gigantic Profits" (http://signaldot.poolofwisdom.com).You can have free access to a swing trading course and trading articles from his site http://www.online-guides.info/Swing-Trading/ Permission is given for you to reprint this entire article provided there are no changes and this signature box is kept intact.
