Breakout Trading

Breakout Trading...is that like a "Get Out Of Jail Free" card?..Well, not quite.

Breakout Definition:

An escape, often with the use of force. An instance of surpassing any previous achievement.

In terms of trading breakout stocks, that definition also holds true. Let me give you an example. Take a look at the Stock Chart below.

Breakout Chart

Chart by MetaStock

I'll break it down for you:

At Pt. #1 in early February, the share price hit a new high of about $46.80.
From that point on until March, the share price went down and bottomed at about $34.00.
At Pt. #2, the share price "Breaks-Out" past over its previous high of $46.80.
Pt. #3 shows that over 5 million shares of that stock traded on the day of the break-out, which is well over it's average share trading volume of just under 2 million shares a day...a very healthy sign!
The share price rose and in mid-August, reaches a new high of over $55.00.

This is a classic example of exactly what a Break-Out trade is all about.

This chart pattern is known as the "Cup and Handle" formation.

Trading breakout stocks was made famous, by William J.O'neil. In his classic book How To Make Money In Stocks: Awinning System In Good Times and Bad, Bill O'Neil outlines step-by-step on how to find and breakout trade the best Growth Stocks.

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Breakout trading happens to be my stock trading system of choice. Specifically, the stock trading system I personally use, is the Pitbull Investor System.

This trading system, and website, does all the pre-scanning and filtering work for you. Every evening after the stock market has closed, you can log-in and all the stocks meeting the breakout trading criteria, are made available for you. Of course after that, you still need to study the individual stock charts, to insure it meets the appropriate technical analysis and risk management criteria. But that's the easy part. All the major leg-work is already done for you.

The The Pitbull Investor Trading Strategy is based upon William J. O'neils breakout CANSLIM system.

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In his book, Bill O'neil calls his breakout trading system "CANSLIM". Each letter in the word C-A-N-S-L-I-M stands for one of the seven chief characteristics of great winning Growth Stocks at their early developing stages, just before they make huge profits for their shareholders.

The explanation of each letter is as follows: