Breakout TradingBreakout trading is a trading model that tries to gain short term profits by catching a stock as it reaches new highs. These breakouts often cause a giant short term surge in the price of a stock.When a stock reaches a new high it is likely to continue to run up in the short term. This initial run up is what a breakout trader is trying to catch. There are two ways to trade breakouts. You can either use a price pattern to try and set a target. This allows you to buy a stock when it breaks resistance put a stop under resistance and place a target on the stock. In a case like that you would exit either when the stock hits the target or your stop loss level. The problem with this is that the stock may barely miss your set target and run back down. But that is a chance you have to take if you follow this model. The other way to trade a breakout is to buy the stock during a breakout and set a trailing stop in place. This way you follow the stock up but are kicked out of the trade instantly if it starts to turn against you. In this case you would not exit until the stock hits your trailing stop. Typically breakout trading is bullish, but it can also be reversed to the bearish side. Dr Cooper is one of the best breakout traders of our time. He has developed a powerful system to catch stock during a breakout and ride them up. In his Option Trading Handbook He explains how to find and profit from breakouts.
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