How to Profit on Momentum Breakouts

Focus: STRATEGIES

Ken Calhoun Image Ken Calhoun President, TradeMastery.com

Ken Calhoun, founder of DaytradingUniversity.com and contributor to Equities.com, explains how to trade two- and 15-day breakouts accurately and confidently.

Focusing on trading specific day and swing trading entries can be made much easier by entering your trades primarily during two-day high breakouts. These occur when the chart is breaking to new highs above the prior day's high and represent one of the most powerful day and swing trading signals an active trader can use to avoid false breakouts and capitalize on strong continuation trades.

The reason for this is because two-day high/low breakouts occur when institutional traders use "high-frequency" trading programs to issue high-volume buy orders. Retail traders can capture strong breakouts by entering these momentum plays as well, once they understand how to enter their trades correctly.

How to Enter Day and Swing Trades

Whether you're a daytrader or swing trade equities, the signal set-up to use is relatively easy to understand. Looking to enter your trade during days in which whatever equity you're trading is clearly above the prior day's high is the main signal to start using.

For example, in Figure 1, Red Hat (RHT), you can see the breakout above the prior day's high over $47, in which it's already moved up a full point, to $48, by 10:30 am EST.

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