WINDERMERE, Fla. ( Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high, or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players that can ultimately push the stock significantly higher.
A great example of a successful breakout trade that I flagged recently was Obagi Medical Products (OMPI). Last Friday, I highlighted shares OBGI in my breakout stocks article, because the stock was in a clear uptrend and heading for a breakout over $16.03 a share.
Guess what happened? Shares of OMPI went on to trigger that breakout, and the stock quickly spiked to a recent high of $18 a share on strong volume. Some of that move is related to speculation in the market that OMPI is going to be bought out soon. On Tuesday, the company released an 8K that officially removed the shareholders' rights provision, or what market players refer to as the "the poison pill." This could have been done because OMPI is receiving attractive offers and it no longer wants to block any acquiring company from making a deal. If that's the case, then this breakout could still be in the early innings since about 5% of OMPI's float is sold short.In that same article, I flagged Stratasys (SSYS) for a possible breakout trade if the stock could manage to take out some major overhead resistance levels at $54.96 to $55.66 a share. Shares of SSYS went on to hit $54.37 a share and subsequently have failed the breakout and sold off. I am highlighting this to demonstrate that not all breakouts works and you have to keep your losses small and move on. Fast traders, if they're nimble enough, can also take the other side of the trade and short a failed breakout. >>ACTIVE STOCK TRADERS: Check out Stockpickr's special offer for Real Money, headlined by Jim Cramer, now! Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher. With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.