Trading new Highs

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Trading new Highs

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I am trying a strategy to trade shares that are making new 52 week highs. The rationale behind this is that it should be a "strong" share, with still some way to go. However this is not alway the case, as there are a lot of false breakouts. The question is how to determine a false breakout. Sometimes even the MACD, RSI & Stochastic can make a new high with the new price high and then fall back. Are there any other, more reliable, ways to determine a false breakout?

Submitter:

ruttie (Ideas, comments)

Categories: Stocks, Technical Analysis

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by JamesEM permalink

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I've always found volume to be reliable when trying to determine if a breakout is real or not. The price activity after the breakout can give you an indication too. I look for either a high paced move out of the consolidation (longer bars/candles compared to the ones preceeding the break) with volume or the above with a low volume pullback to the break followed by further bullish price action.

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by thiscoloradokid permalink

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I'm in agreement with JamesEM. I use both range expansion and volume expansion to assess a breakout. In strongly trending markets you generally have to buy the breakout as it occurs, then assess it's validity by the volume and range expansion that day. In less trending markets it seems prudent to wait for the first pullback even though you miss a little of the rally.

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