Breakout Strategy Overview

Key Concepts

• Breakout Strategy: Focuses on stocks that are experiencing significant price movement, either gapping up or down, with high volume.
• Not Universal: This strategy doesn't work on all stocks, such as Ford on a typical day. It's more effective with stocks that have fundamental news driving them, like Tesla.

Analyzing Stock Movement

• Pre-Market Analysis:
  • Check if the stock is trading above or below the Volume Weighted Average Price (VWAP).
  • Assess if the stock is showing strength or weakness in the pre-market.

Execution of the Strategy

• Initial Setup:

  • Focus on the first 5-minute candlestick after market opens.
  • Determine if the stock is bullish (trading above VWAP).

• Trade Execution:

  • Enter a long position if the stock is above VWAP and showing initial strength.
  • Place a stop-loss just below the VWAP.
  • Aim for the breakout of the pre-market high or the next key technical level.

Summary

• The strategy involves precise timing and careful monitoring of the stock's early behavior in the market.
• It relies heavily on technical indicators, specifically the VWAP and initial candlestick patterns, to make informed trading decisions.

These notes outline the critical components and execution steps of a breakout trading strategy, highlighting its reliance on pre-market analysis and specific technical indicators.