Finding Stock Price Breakouts Using Candlestick Signals

One of the most profitable trading strategies is identifying stock price breakouts. Stock price breakouts incorporate one simple element. Something new and dramatic has occurred in a stock price, making it extremely desirable for investors to get into the position quickly. A breakout pattern is very easy to scan for and identify. Utilizing Candlestick signals creates an easy platform for maximizing profits once a breakout has occurred. The signals provide the ability to determine whether to get into a stock trade after a huge percentage move immediately or wait for the profit-taking pullback. This can be done with some very simple analytical techniques.

Breakouts occur due to a change in world events or a dramatic change in the fundamentals of a company. As illustrated in the INVN chart, a world event changed the fortunes of this company. 9/11 made the product of this company a high profit potential.

INVN is a manufacturer of the luggage scanning machines for airports. The interest in their product after 9/11 moved the stock price from $2.50 to over $45 in approximately 4 months. What was the best way to trade this position? The black candle on the breakout day provided a much different scenario than if a white Candlestick had formed that day. How investors react to news, whether a world event or a product specific announcement for a company, has a great influence on how the trend will perform from that point.

INVN Breakout


Currently the AVII chart is illustrating a breakout situation. Recent news announcements have taken the lethargic trading into new recent highs. Volume becomes a very important factor for identifying a breakout situation. The probabilities are extremely high that once a breakout in price occurs, especially out of a very boring trading pattern, the uptrend will continue for a reasonably long period of time, due to the new interest that has come into the stock. The large volume trading days, going from approximate 200,000 shares a day to well over 2 million shares a day clearly demonstrates that new interest has entered the stock.

Once large percentage gains have occurred, pullbacks should be expected. How these pullbacks are portrayed with Candlestick signals is a very important factor for evaluating whether a profit-taking pullback is occurring or the uptrend is over. Having this knowledge greatly enhances the ability to ride through a strong positive move without getting out too soon.

AVII Breakout

Market Direction – The Morning Star signal in the Dow with stochastics in the oversold area has been the overriding reversal signal. What could have been a potential of a Double Bottom, or at least a test of the recent lows, was eliminated as buying brought the Dow index back up through Wednesday’s open. Wednesday’s Bullish Engulfing signal with stochastics closer to the oversold area than the overbought area illustrates that the buyers are still in control. The profit-taking of Tuesday and early Wednesday adds to the health of this uptrend.

Dow Breakout

The Dow

Continue to hold long positions in strong sectors. The uptrend should eventually test the 50 day moving average and the 200 day moving average.

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