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How To Find Breakout Stocks To Trade In 2021

Jenna Gleespen - August 06, 2021

Breakout Stocks featured

If you follow the stock market at all, then you know that the 2021 investment trend is undeniably breakout stocks. 

From crypto stocks to simple surprises in the stock market, breakout stocks hold a lot of profit potential for savvy traders who understand when to get in and when to get out while trading breakouts. 

Of course, the key to trading breakouts is learning how to find breakout stocks. 

Though, if the strategy was simple, then everyone would be doing it.

Breakout trading takes talent and tools to get to the point where you can reliably identify trends and news.

Some people say that history repeats; but on the bull market, investors say that it rhymes. 

There is an identifiable pattern that can predict breakout stocks, and learning to catch signals and the patterns is the key to finding short-term trading possibilities with high potential.

How to Find Breakout Stocks

So the million-dollar question is how to find breakout stocks in 2021. 

The answer (like most things in the stock market) is a bit complex, a bit instinctual, and a bit of luck. 

Breakout stocks structure

To start using this powerful investment technique, you need to understand fully what a breakout stock is. 

Breakout Stock Defined

A breakout stock is traditionally defined as when a stock’s price starts to move ahead of the accepted resistance level. 

The resistance level is the highest level a stock has ever reached, so a breakout stock occurs when the price of the stock passes its resistance level. 

Some investors might refer to this as when the price breaks.

The funny thing about breakout stocks is that most don’t immediately fall once they break their resistance level. 

In fact, once they break the glass ceiling so to speak, they usually continue to jump up due to an increase in volume or interest before they fall again. 

What is Breakout Trading?

The goal of breakout trading with stocks is to successfully recognize patterns so you can jump in just as the stock breaks the resistance level and then have a set exit time in mind. 

This helps ensure that you don’t get burnt by the fall of the stock. 

Increased company interest, increased volume, or an unexpected news story are all events to watch for.

Watching for these indicators will help you determine if a stock is getting ready to swing your way. 

Key Indicators a Stock is About to Breakout 

While it would be nice if a quick Google search could tell you the latest breakout trend, this won’t get you your desired entry point (although trending Google searches may guide you toward a stock’s price jump). 

Instead, research, data, and analysis are probably the best tools to keep in your trading arsenal to start seeing the patterns that lead to a breakout stock.

Remember, entry and exit points are the key to successful trading strategies. 

With this in mind, it may be helpful to learn about three key indicators that tell you if a stock is about to break out. 

Volatility

Volatility is a necessary evil of the stock market, and it can be your best friend or your worst enemy.

breakout stocks volatility

Almost all great breakout trades come with sudden increased volatility, which can make this a riskier stock trading method.

But like most high-risk trades, it’s also what can make breakout trading so lucrative for smart investors.

Therefore, if you are playing the modern stock market, you need to be careful trading because stocks move very fast. 

A stock’s price can change multiple times in one day, so you must learn to follow the data and study the moving average.

Working with the right trading platform that has built-in alerts can help you stay on the fast track for short-term gains. 

It can also help you balance the risk/reward ratio a bit by setting exit points to help you get out before the crash occurs.

Volume

Many investors consider volume to be one of the major indicators of impending opportunities. 

Once the volume jumps, there is a good chance that a stock is poised to be a breakout.

breakout stocks volume

It is important to realize that high volume does not always mean a breakout is pending, but low trading value pretty much guarantees that it won’t. 

So what qualifies a stock to be considered high volume? 

It is easy for hundreds of millions of shares to trade in just 24 hours, so how do you identify a breakout stock?

You can see which stocks are gaining momentum out of the blue with the right platform and the right eye. 

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There are a lot of different catalysts that can cause the volume of stock to spike out of the blue. 

Sometimes news of a merger or a big contract will generate a spike in the volume of trades, and this is why the news can be a very important tool for discovering breakouts.

Support and Resistance Level

When learning how to identify a breakout trade, resistance level, and support level is extremely important. 

These are the key price points that actually define a stock as a breakout.

If you notice a pattern of a stock consistently breaking through resistance and/or support levels before regrouping, then it is poised to breakout. 

Breakout stocks resistance level

Once it consistently jumps upwards the buyers are now controlling its rise in price, and it’s time to jump in and ride the wave for a bit as it surpasses both the known resistance levels and support levels.

Use a Stock Screener to Find Trends

Even if you spend all day on the computer monitoring the stock market, you can’t expect to monitor the movement of every stock. 

Therefore, a stock screener is an invaluable tool for novice traders to adopt as they start to look for breakout signals.

Breakout stocks stock screener

Stock screeners help you sort out the stocks and steer you clear of undesirable markets that aren’t going to develop any viable results.

The stock screener takes on the role of scanning markets and watching for a developing trend.

Usually, a breakout stock has a price action that is hovering slightly below or slightly above support and resistance levels.

More on Finding Breakouts

Your stock screener’s job is to alert you of a price jump and react at the stop loss point you denote.

The stock screener will look at stocks that show this slight movement and then monitor even closer for signs that upward momentum is starting to build.

If the screener spots a trend of the stock moving up, it will send you an alert that lets you know it’s time to take action.

Most stock screeners allow you to set filters to control the screening process so you can more accurately identify a trend that is in line with your metrics.

As a breakout trader, optimal filter settings include equity, price greater than “X” (your ideal buy-in amount), and volume greater than 2,000,000.

Check Reliable News Sources for 

Part of how to find breakout stocks includes knowing why stock prices are moving upwards.

A lot of times, breakout stocks stem from unexpected media coverage that places a company near the global spotlight. 

Jumping into the breakout early can help you ride the tide of good fortune along with the company. 

This is exactly what happened at the beginning of the year with plenty of crypto-related stocks.

In fact, ever since the huge bitcoin market value jump, crypto-related stocks are on fire and a great example of a market that a hip breakout trader would be wise to watch.

Breakout Stocks can be Found Anywhere

Of course, breakout trades are not limited to just crypto markets and can happen to large publicly traded organizations as well as penny stocks

Something as simple as a clever product placement in a leading television show and light coverage following the appearance is all it takes to send a stock soaring upwards at a highly profitable rate. 

One of the most important things to remember while day trading is that any stock and any market can produce a breakout stock worth jumping into. 

Don’t make your parameters too narrow while studying a trend or range on a chart.

Therefore, don’t take any news story too lightly and make sure to check the performance of any companies that are trending — regardless of your personal familiarity with them and current strategy.

Use Social Media to Find Trending Stocks 

Studying Google for search trends is not new for modern traders, but using social media might be if you are a novice trader or a novice social media consumer.

However, given how social media platforms have redefined the way we digest information, it stands to reason that they can be a great resource and a technical indicator of trending stocks.

Similar to staying on top of the news cycle, the best way to use social media is to stay on top of trending topics and hot social media gossip so you can get your bite of the apple. 

You aren’t going to get in on any hot trades at the start by just searching for trending stock tips alone.

But if you stay on top of trending topics you can hopefully mine stocks that are emerging and getting close to their resistance mark.

A Study in Breakout Stocks: Gamestop

A great example of the potential of social media to create breakout stocks is Elon Musk and GameStop.

One innocuous tweet by the billionaire sent GameStop shares surging to a never before seen day high that settled at more than an 800% jump. 

breakout stocks GameStop

This is much more valuable than the stock is really worth.

It is unlikely that the stock will maintain its current value for a long period of time, but for smart breakout traders who moved fast, it doesn’t matter.

Those who jump in at the beginning and jump out soon will make a nice tidy profit.

Find the Influencers and Note Their Stock Choices

If you want to learn how to find breakout stocks on social media, pick a few huge influencers and follow their picks. 

The influence of some of the largest social media starlets extends way past teens and college kids.

A lot of the most notable influencers like Elon Musk have the ability to channel their popularity and move a stock with just a mention.

So if you see a tweet go out, it may be wise to jump in early and wait for the rest of their followers to push the stock into the breakout zone.

How to Find Breakout Stocks: Final Thoughts 

If you want to learn how to find breakout stocks the best thing you can do is learn to be omnipotent. 

Of course, that is a pretty lofty goal; so in the meantime, it may be helpful to use some trading tools and alert systems that can help you learn where to channel your energy.

The most important quality of a breakout trader is being present because breakout trades happen fast and can fall fast. 

You need to be present and be ready to jump when alerted to a possibility, and you must be open and flexible to chase that opportunity regardless of stock identity or market.

When you start trading, you need to invest time in sharpening several strategies that can help you monitor and identify potential breakout stocks from all over the national and global market.

Improving your Strategy for Finding Breakout Stocks

Investing in developing your strategies before you begin trading will help you succeed in the long term.

Using a stock screener tool is an excellent way to keep an eye on known markets.

A screener will help you spot news trends and social media trends so you can stay on top of pop-culture-spawned breakout stocks.

The most important lesson you need to learn is that every single stock has the potential to be a breakout stock.

Also, don’t count anyone out if the market conditions look ripe and trading volume is high.

With a measurable balance of risk and skill, there are great profits ready to be found for those willing to try out this modern trading strategy.

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Jenna Gleespen is a copywriter specializing in finance and investment finance. Originally from the United States, she now calls London, England home.