Dalal Street Investment Journal|May 25, 2020
Ask this question to any trader who has spent time in the markets trading equities: how does it feel when a stock gives a breakout in the expected direction? As Jayesh Chordia, a regular trader who has been making profits on quite a consistent basis, says: “The feeling is sublime. When you enter a trade after watching a breakout, the profits are easy and quick and hence super-satisfying. At that moment you do feel as if you are the smartest person alive and the moment is that of victory. But to experience this feeling, one has to focus a lot and concentrate on the essentials while ignoring a lot of noise. Using price volume breakout successfully is a game of patience, study and observations.”
Defining Price Volume Breakout
Price volume breakout is nothing but a potential trading opportunity. Such opportunities are seen in trending markets moving either up or down. However, in sideways markets such opportunities will be minimised. A breakout happens when the stock price moves above the crucial resistance level or moves below the sacrosanct support level with increasing volume. The most important aspect here is to focus on increasing volume when the important support and resistance levels are broken.
If a trader wants to enter a position looking for a price volume breakout, it is essential that the important support and resistance levels should first be identified. Stronger the resistance and support level more valid the breakout can be and hence more profitable. One of the ways to identify if the resistance or support levels have been strong is to identify the number of times the stock prices have touched the resistance and support prices. For example, in 2016, Tata Motors made a double bottom at around ₹298 per share odd levels. So ₹298 becomes a strong support for the share and chances are if the support is broken with heavy volumes the share may witness a steep fall, which is exactly what happened with the share price of Tata Motors.
You can read up to 3 premium stories before you subscribe to Magzter GOLD
Log in, if you are already a subscriber
Get unlimited access to thousands of curated premium stories and 5,000+ magazines
READ THE ENTIRE ISSUE
May 25, 2020