Trading Breakaway Gap Stocks

11/18/2020 10:00 am EST

Focus: STRATEGIES

Suri Duddella

Trader and Author, suriNotes.com

Breakaway gaps occur when prices rise out of congestion zones or long-base trading areas to signal a potential emerging trend. When growth stocks break away from long bases, they show their sentiment change from bearish to bullish or vice-versa, states Suri Duddella of suriNotes.com.

The breakaway gaps are most reliable and are easy to detect visually.  Breakway gaps usually form in the beginning phases of a trend and show a great potential for a significant move up or move down in the direction of the gap. These gaps usually accompanied by heavy volume on the breakout and produce strong gains in just a few months of trading, and also, they do not tend to close gaps quickly.

How to Trade Breakaway Gaps 

  1. Enter a trade above the breakaway gap bar's high.
  2. Place a stop below the low of the bar prior to the gap. 
  3. Targets are usually set on a previous major swing high or significant unfilled gaps in the direction of the gap. 

Breakaway Gap Examples

Boeing Co. (BA)

The following daily chart of Boeing Co. shows a long-base formation from a low of $140 to $175 in June 2020 to November 2020.  On 11/09/2020, BA rallied from a previous close of $157.74 to an open of $179.00 (Gap Up: $21.26 Gap Perc%: 13.48%) breaking above the previous trading range with increased volume. BA may continue its breakaway gap up rally towards the next unfilled gap levels at $238 and $262. A stop is placed below $154.52.

BA

JPMorgan Chase (JPM)

The following daily chart of JPMorgan Chase & Co. shows a long-base formation from a low of $90 to $105 in June 2020 to November 2020.  On 11/09/2020, JPM rallied from a previous close of $102.96 to an open of $113.16 (Gap Up: $10.20 Gap Perc%: 9.91%) breaking above the previous trading range with increased volume. JPM may continue its breakaway gap up rally towards the next unfilled gap levels at $126 and $135. A stop is placed below $102.

JPM

Alaska Air Group Inc. (ALK)

The following daily chart of Alaska Air Grp Inc. shows a long-base formation from a low of $33 to $42 in June 2020 to November 2020.  On 11/09/2020, ALK rallied from a previous close of $38.26 to an open of $44.74 (Gap Up: $6.48 Gap Perc%: 16.94%) breaking above the previous trading range with increased volume. ALK may continue its breakaway gap up rally towards the next unfilled gap levels at $54 and $57. A stop is placed below $38.

ALK

To learn more about Suri Duddella, please visit SuriNotes.com.

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