hey everyone thanks for checking out this video my name is Travis rose I'm
the creator of the master the market education that you can find link below
in the description in this video I'm going to be going over how to trade
stock breakouts and we're gonna be talking more importantly about how you
can avoid buying false breakouts which really causes a lot of inexperienced
traders to buy stocks at the top before they come back down
okay so first and foremost what is a breakout a breakout is going to be a
move over a defined level of resistance so we know that resistance levels are an
area where the price seems to peak out multiple times and then come back down
and once that area of resistance is formed a breakout is going to be when
the stock is able to break above and move forward from that resistance level
now realistically there are plenty of different ways to trade breakouts but
unfortunately a lot of new traders are taught to trade breakouts the improper
way and really this improper way is just going to cause higher risk and lower
accuracy and realistically is considered more of chasing than it really is a
trading strategy so this is something that we see very common when we see
stocks quote-unquote breakout I'm you can see here on the left side of the
chart the stock SNC a formed a peak right about there before it pulled back
down so naturally that peak where that high for the day is automatically going
to become a level of resistance later on we see that very briefly the stock is
able to breakout above that resistance level but we can see in this case this
is what is known as a false breakout so it breaks out very short term and very
temporarily and then comes straight back down and ends up going lower throughout
the remainder of the day and that's something that happens very often when
we do see breakouts especially when we're trading these small cap stocks in
the you know one to ten dollar range so if you're somebody that's trading a
breakout by simply waiting for it to make a new high and then buying into the
stock expecting it to go higher from there again that's going to be more of
chasing than an actual strategy and that's gonna a lot of times caused you
to buy into these false breakouts and take unnecessary losses that you can
very easily avoid okay so what a false breakout is is a short-term temporary
move over a defined level of resistance and that's exactly what we saw in the
preview slide so these false breakouts do often
cause chasers to buy at the highs before the stock pulls back down or reverses to
the downside and we of course want to buy low and sell high in the market not
the opposite so buying into these false breakouts is something that we of course
want to avoid doing and just to give you a few more examples here of some false
breakouts we have FL NT on the left and CET X over
there on the right and both of these actually happen on the same day and
pretty much at the same time so you can see on the left side of both of their
charts they formed a pre market high and that's going to be in the gray area on
the left side and then once the stock market opened for the day that's when
the background of the charts goes to black and you can see later on
throughout their days they end up breaking briefly above their pre market
highs and then both immediately come straight back down and go lower from
there so again this just shows you how crucial it is to avoid buying these
false breakouts and that's exactly what I want to teach you how to do so when
you're trading breakouts in my opinion the best way to do it is to only buy a
breakout after the previous breakout level or in this case their past
resistance level has now become a level of support okay so this is going to
prevent you from buying false breakouts and by doing so it's going to minimize
your risk while trading breakouts and of course overall is going to increase your
accuracy with your breakout trading now if we go back to these examples you can
see that both of them only very briefly broke above their previous resistance
levels which were their pre market highs before coming straight back down so
because with the strategy you want to wait for these past resistance levels to
now become a level of support by doing so you would completely avoid buying
into these false breakouts and you would save yourself from taking losses by
doing so so to give you an idea of what this is going to look like we have a
diagram here and you can see on the left side of the diagram at the breakout
level there seems to be a bit of resistance on the stock later on is able
to break through that resistance level and again what we want to do is now wait
for that resistance level to turn into a level of support and like any other
level of support we can use that to buy into the stock and safely trade the
breakout without having to worry about buying into a false breakout
and what this will look like on a real chart is if we take the example here for
AMD we're looking at the 1-day one-minute chart so each of these
candles represents one minute of price action and this is the span of an entire
day so on the left side of the chart you can see that there is a high formed it
pulls back down later on is able to break above that high which is of course
the white line on the chart and you can see for a little bit over an hour
actions the stock is able to consolidate and hold above that past breakout level
now as a level of support which would offer us a great opportunity to buy into
the stock at that support level and profit from the run that happens later
on in the day and I actually wanted to include this example in as well because
many times will also see false breakouts happen below support rather than above
resistance okay so if you're somebody that short sell stocks rather than buy
what you would want to do to wait for the confirmed breakdown below support is
instead of waiting for that level to become a level of support like we would
if we were trading a breakout to the upside in this case we want to wait for
that breakdown to happen to the downside and then wait for the stock to bounce
into that breakdown level which is then going to become a level of resistance so
then you could use that resistance level to short sell into and profit from the
stock reversing to the downside from there and one last example that I wanted
to show is for the stock symbol I MBI again this just goes to show you how
crucial it is to wait for a confirmed breakout rather than to just buy when a
stock is making a new high I'm if we see on the far left side of chart all the
way up here we have the stock at the morning high I'm right at about five
dollars and 40 cents so again many people are taught to trade the breakout
by simply waiting for a new high and then buying the stock with the
expectation that it's going to break above that high and continue to run
further and further but again what we see many times is false breakouts happen
in a stock market and in this case I am bi does have a false breakout are really
only a few cents and then comes all the way back down and later on is all the
way down to about $4 per share so by waiting for that breakout confirmation
of the past breakout level turning it to support since we don't have it in this
case you would be able to avoid this false breakout and you would save
yourself from potentially taking a huge loss on the trade okay so I hope that
gives you an idea of how you can safely trade breakouts and minimize your risk
while doing so if you like this video and you thought it was useful please
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miss out on future videos and if you want to learn more detailed strategies
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down below in the description which is my website master the market anyway
thanks again for watching I hope you enjoyed and I'll see you in the next
video