Morning Breakout - 01/12/2010 CDII
Here's an example of a morning breakout on a chart of CDII from 01/12/2010.
Trading this type of pattern can provide opportunities for short term scalping type trades and also longer term swing trades at times.
This article will concentrate on short term scalping type trades as this is the type of trading I do most often.
CDII has been very active lately for a variety of reasons, but we will be looking into the pattern here, not necessarily the reasons. Although knowing the possible reasons for the move should definitely be looked into prior to making a real live trade.
The last thing you would want is to buy in only to find out the stock was being pumped by paid stock promoters, and then begin to decline right after you went long.
Let's take a look at the chart below. The first thing that is noticeable is that there was quite a bit of pre-market trading going on this day (the light gray area to the left).
During pre-market, you can see that prices started high, moved lower, reversed and moved back to the initial high price area, then pulled back slightly.
This price action formed a price channel that can sometimes be used as a good reference range when looking for a potential breakout.
As the regular trading session opened, prices moved slightly lower, but stayed within the pre-market trading range. Between 9:30 and about 9:45 a.m., prices hit a common resistance level at $2.28.
Then, around 9:45 a.m., prices broke through this resistance at $2.28 on increased volume. This was the first morning breakout entry signal that occurred.
Moving along, prices then met up with slight resistance at the pre-market upper range of $2.35, but quickly moved up through that as well. This was the second morning breakout pattern that occurred.
Entering long on either of these tow morning breakout signals would have produced a nice, short term profitable trading opportunity for the day.
While all patterns and signal don't always work out, this is one that has worked out well for me in the past on many occasions.
Be sure to do some research to find out possible reasons for potential moves like this, including the preceding days up to the day you are looking at.
By doing so, you may also be able to see previous support and/or resistance levels that may help signal good entry points, or at least add further self-confirmation that what you are thinking may indeed have good potential.