DELAFIELD, Wis. (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 who can ultimately push the stock significantly higher.
One example of a successful breakout trade I flagged recently was wireless telecom player China Techfaith Wireless (CNTF), which I featured in Dec. 19's "5 Stocks Under $10 Set to Soar" at $1.50 share. I mentioned in that piece that shares of CNTF had been trending sideways over the last few months, with shares moving between $1.28 on the downside and $1.60 on the upside. Shares of CNTF were just starting to spike higher back above its 50-day moving average of $1.46 a share with strong upside volume. That move was quickly pushing shares of CNTF within range of triggering a big breakout trade above some near-term overhead resistance levels at $1.54 to $1.60 a share.
Guess what happened? Shares of CNTF didn't wait long to trigger that breakout, since the stock started to take out those key overhead resistance levels the following week. Shares of CNTF have continued to uptrend strong since clearing those breakout levels, and shares of CNTF have exploded higher today tagging an intraday high of $2.24 a share. That represents a monster gain of 50% in about a month for anyone who bought this stock once it broke out. As you can see, trading breakouts can lead to massive gains in very short timeframes.
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Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.
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.