Price Volume Breakout: Excellent Strategy To Make Money!

Dalal Street Investment Journal|May 25, 2020

Price Volume Breakout: Excellent Strategy To Make Money!
When it comes to trading in the equity markets there are several strategies that traders swear by for profitable and quick returns. Price volume breakout is one of the most popular and profitable strategies that can be executed with minimal drawdowns. Yogesh Supekar explains the details of the strategy while Vinayak Gangule provides some examples to help understand the concept and approach
Yogesh Supekar and Vinayak Gangule

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.

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May 25, 2020