Breakout Trading - A Profitable Strategy For Investors?

Breakout trading is a very popular form of trading amongst professional traders but it's also a common strategy amongst long-term investors as well. Shares will often trade in a very narrow range before finally breaking upwards, which is where investors start buying, but is this actually a consistently profitable strategy?

Well I personally do believe it is a solid strategy because for a start it's always a good idea to buy into shares that are already rising, and shares that are breaking out of an established trading range and making new highs certainly fall into that category. It's certainly a safer way to invest than trying to pick out shares that are heading downwards and looking oversold. Although you can make decent profits this way, you can also lose a lot of money as well because it's always hard to call the bottom.

The reason breakout trading is so effective is basically because of the herd mentality of the human race. When we spot a share price that's finally broken out of a long established trading range, we all jump on board and buy those shares knowing that in all probability many other investors will do exactly the same.

For example if one of the major companies starts heading higher and making new highs, the odds are that it will keep going higher, at least in the short term, as more and more traders become aware of this breakout activity. Unfortunately these upward breakouts have been rare on the big-cap stocks in the last year or so because the markets have obviously been heading downwards, but in a normal market these breakouts can provide great investment opportunities.

It's a similar story with the small-cap companies. In fact these are arguably better for trading breakouts because they are less affected by the overall market and therefore there are always plenty of these companies making new highs. Furthermore you will often find that when these companies do surge upwards, they are often as a result of very high volumes, ie lots more shares have been traded than normal, which is always a very good sign that a share price really is breaking out and likely to continue to go higher.

Investments in these smaller companies can often provide far greater returns than larger companies. I personally have banked several gains of between 50% and 100% in the past trading these volume-backed breakouts, but this would be almost impossible trading one of the larger and more actively traded companies.

Anyway the point is that if you are looking to invest your money into the stock market, and don't want to expose yourself to too much risk, you could do a lot worse than only investing in companies that are breaking out and making new highs. After all if it turns out to be a false breakout, you can nearly always get out with just a small loss, and yet you can potentially make substantial gains by letting your winning trades run for as long as possible.

About the Author:
Click here to read a complete review of TradeKing and to read a full Zecco review.

Article Originally Published On: http://www.articlesnatch.com

Tags: stocks

, shares

, investing

, breakouts

, breakout shares

, trading breakouts

, investing strategies

Related....

Videos...

Recent UnCategorized Articles

Online Shopping When Searching For Discount Furniture And Home Accessories By: John Smithes | May 26th 2012 - Have you tried purchasing goods and commodities via online shops in the internet? If you already had, then you had discovered how easy and convenient is online shopping. Finding discount contemporary furniture via the internet is as easy as buying any other commodity from any online shop.

online shopping

phoenix furniture

discount furniture phoenix

modern furniture phoenix

furniture phoenix

Obtaining Benefits For Carpal Tunnel Syndrome Sufferers By: Dylan Taylor | May 26th 2012 - Carpal tunnel syndrome, which is one of the most common occupational diseases, occurs when the tissue surrounding the wrist becomes inflamed. The median nerve that runs from the wrist to the hand is pressed by the inflamed tissue, eventually leading to acute pain, tingling, and numbness in hands ...

Why Most Consumers Are Not Serious About Life Insurance By: Shaun Greer | May 26th 2012 - For many people, confronting their own mortality is a rather unsavory prospect. It can produce feelings ranging from mild discomfort to outright existential terror. No well adjusted person looks forward to his or her own demise; especially a premature one.

Life Insurance Companies

The Best Ways To Sell A House In Autumn By: Shaun Greer | May 26th 2012 - There are some wonderful times to release your home into the hands of new owners. People that have never sold a home may not realize it, but sometimes are definitely better than others. Autumn, for example, is one of the best times to sell. This is the season where the outside of the home can act ...

sell my house

Injuried Woman Gets Maximum Compensation Thanks To Video Footage By: Dylan Taylor | May 26th 2012 - Slips and Falls are a frequent accident. Video footage in public spaces can help the injured party prove the property owner was negligent of the slip and fall hazard and make the personal injury case much easier by proving liability.

slip & fall

personal injury

Know The Different Types Of Home Alarm Systems By: John Smithes | May 26th 2012 - When considering the installation of an alarm system in your home, you should ensure that you have explored all the options. This enables you to choose the right kind that will afford you the desired safety and security.

home alarm system tucson

home alarm az

home security tucson

patrol service az

security systems tucson

The Critical Benefits Offered By An Online Shopping Cart By: Levi Wright | May 26th 2012 - This software has advantages from a transaction management standpoint as well. It enables tax collection, discount application, and shipping costs to be automated. This can save the entrepreneur and his staff many hours of work and attention that can be better used in other areas of the business.

shopping cart

Off-roading Capabilities And The Kind Of Vehicles For These Activities By: John Smithes | May 26th 2012 - In the past few years, vehicle lovers started to engage in motor-vehicle activities. This started the building of different ATV or all-terrain vehicles. This is what vehicle owners used for their off-road activities.

Taking The Jump To Source An Insurance Quote By: Lena Shattuck | May 26th 2012 - The difficulty is that with the variety of options that would be found on the website, people do not know who and what they should trust. In order get the best offer, there are a few things to consider. First you have to realize that the Internet has made it easy to evaluate offers and that some ...

insurance quote

medical insurance

Using The Internet To Sell Your House By: Shaun Greer | May 26th 2012 - Are you planning to move and looking to sell your old home? Most of the people planning to move to a new place face this problem. Getting along with a real estate agent is the old idea and it costs a lot of money. Selling your house online is the best option that will help you in getting the best ...

sell my house

Comments

Still can't find what you are looking for? Search for it!

Site Navigation: