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, it's free to find new buyers and momentum players which can ultimately push the stock significantly higher.
Breakout candidates are ones that I tweet about on a daily basis. These are also the exact type of stocks I love to trade.
I frequently flag high-probability setups, which are breakout plays and stocks that are acting technically bullish. These are the ones that often make monster moves to the upside. What's great about breakout trading is that you only focus on trends, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.
Trading breakouts are 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, 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 possibly trade higher from current levels.
One personal products player that's starting to trend within range of triggering a near-term breakout trade is Coty (COTY) , which manufactures, markets, and distributes beauty products worldwide. This stock has been smacked lower by the sellers over the last six months, with shares falling large by 30.4%.
If you take a look at the chart for Coty, you'll notice that this stock has been consolidating and trending sideways over the last three months, with shares moving between $17.82 a share on the downside and $19.88 a share on the upside. This sideways chart pattern is coming after a massive downtrend, that saw shares of Coty fall from its recent high of $29.50 a share to that $17.82 low. Shares of Coty are now starting to bounce higher right off its 20-day moving average of $18.74 a share and back above its 50-day moving average of $18.81 a share. That bounce is quickly pushing this stock within range of triggering a big breakout trade above the upper-end of its recent sideways trending chart pattern.
Traders should now look for long-biased trades in Coty if it manages to break out above some near-term overhead resistance levels at $19.34 to $19.88 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 7.16 million shares. If that breakout hits soon, then this stock will set up to re-fill some of its previous gap-down-day zone from last November that started near $22 a share.
Traders can look to buy Coty off weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $18.14 or at $17.82 a share. One can also buy this stock off strength once it starts to take out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.