WINDERMERE, Fla. (Stockpickr) -- Trading stocks that are breaking out is one of my favorite ways to play the market when I am looking for names that could be poised to move significantly higher.Breakout trading offers two key advantages that you won't get from many other trading strategies. The first is that the momentum crowd and trend traders -- I am both -- love to jump into stocks that are breaking out because they're displaying relative strength. Both of these sets of traders control a ton of money on Wall Street -- especially among the hedge fund and mutual fund community. Since they control so much cash, it gives them the power to really move a stock once they all collectively jump into a name. The second of trading stocks that are breaking out is that bears love to short them. Often the bears think that a stock that's breaking out is going to fail and or form a double top, so they'll jump in on the short side. Sometimes they are right, but more often than not, they're wrong and get hurt for fighting the trend. This is especially true in bull markets that are trending higher like we have right now. When a market is trending higher, many short-sellers like to deploy their crystal ball and short into strength. I love this, because it provides the fuel that sparks the short-squeeze fire. Related: 3 Stocks That Could Rebound in 2011 A little review: A breakout occurs when a stock makes a move through a significant level of support or resistance, which is usually followed by heavy volume and increased volatility. Wall Street players love to see an upside breakout because it demonstrates strength in the underlying asset as the price breaks above a level of previous resistance. An upside breakout can also take a stock to new highs, which will generate a lot of interest as the stock shows up on sophisticated software that scans for this type of action. Big volume on a breakout trade is very important because it increases the probability of a stock going much higher. However, it isn't mandatory that a stock has big volume on a breakout. Sometimes the big volume won't come in for a few trading sessions following a move through past resistance. What's most important to breakout trader is price and trend first. Volume is secondary, but the big volume does increase the chances of a successful breakout trade. Here's a look at a number of solid breakout stock candidates that could have big upside potential.
Whole Foods Market
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