MarketSmith and Investors Business Daily
As an Investors Business Daily subscriber, my epiphany came the first time I successfully traded a breakout strategy, legging into a position minutes after the stock triggered a buy signal. Herein we’ll discuss some recent examples and provide a systematic way to find additional trades using this type of “breakout alert.”
Once we find a candidate that meets our criteria, we enter our order and place a stop just below the pivot for a bullish breakout. Once the stock moves in the anticipated direction we adjust to a trailing a stop soon thereafter.
Many, many trades later, the process is ingrained into my workflow.
Improving Your Odds of Success
If the markets are moving higher and the sector(s) in question is bullish, we can assume industry groups and individual stocks will have a higher probability of achieving our goals. We call this the top-down approach.
Top-Down Approach and Industry Ranking
Investors Business Daily ranks industry groups from 1 to 197 with the latter number representing the weakest industry group. This MarketSmith feature produces a list with one click, pulling data from the IBD database.
Now we’ll look at some examples that help clarify our thinking. We’ll look at strong sectors and industry groups that produced stocks that were ready to break out.
Medical products are currently ranked number 3 of 197 industry groups. Three (3) months ago this group was ranked 29 of 197, so it was moving up the list. This is something to pay attention to if you want to be successful.
In the interim period, as Medical Products moved up the list, STAA triggered a “breakout alert.”
Buying the stock near the 17.20 pivot twenty (20) days ago tagged a 69% gain. Not bad, especially if you’re having difficulties picking winners and making money as a new trader.
Note RS line is at 99 and climbing. The stock is strong.
Oil Gas Exploration and Production
This industry group and the stocks therein are currently ranked number 1 of 197.
Wildhorse broke out of its cup and handle base, a continuation pattern, as it cleared the 21.43 pivot. Thirty-five (35) days later, the stock has gained 25%. RS line is at 98 as another base appears to be forming.
USAT is in the Energy Management and technology related industry group. We entered a position in this stock the day it broke out. Below is a social media post from May 8.
Note the bottom left notation, +28.10% since that post, dated May 8.
Here is the chart as of Thursday close. A modest $10,000 investment (1000 shares) is worth $13,450.00 seventeen (17) days later. And, if you bought that position in your IRA, you’re capital gains are taxed later.
Ok, enough examples, how do you (we) find the next breakout candidates, with sound technical patterns, sporting the best sales and earnings growth?
You guessed it, MarketSmith does all the work.
Find the Next Winning Breakout with MarketSmith
Thursday morning we discussed stocks that were “Near Pivots.” You can read that article here.
The premise is simple. Create a list of stocks where sales and earnings are growing better than 30% year-over-year and couple that with candidates approaching a breakout pivot (buy zone).
The MarketSmith Growth 250 is a good place to start, as it cultivates a list of candidates with superior fundamental and technical attributes. We are left with a list of stocks ready to add to our watchlist for the trading day.
We’ll skip to Shopify, since we prefer the cup and handle pattern. A break above the handle at 151.40 (+0.10 above the pivot) will trigger our alert to buy the stock. RS line is rising at (88), with the potential to move higher.
This basic workflow takes very little time to complete, as Investors Business Daily does most of the work. After a bit of practice, this process will become systematic and consistent. In addition, you’ll have the added benefit of producing good work habits, something shared by all successful traders.
Obviously, not all trades will work out according to plan, as market conditions are unpredictable. Therefore, sound money management must always be considered prior to taking any trade using this strategy.
Finally, ask yourself if your personality matches this type of strategy. Breakout trades aren’t for everyone, despite the fact that I’ve been using this simple technique to make money trading the markets for over 30 years.
Join us at The Closing Print as we trade these setups in real time during our LIVESTREAM broadcast during market hours. Watch, listen and learn.
Disclaimer: Do your Own Research
Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
We would like to draw your attention to the following important investment warnings. The value of shares and investments and the income derived from them can go down as well as up; Investors may not get back the amount they invested – losing one’s shirt is a real risk; past performance is not a guide to future performance.