Tuesday 2 March 2010

How to find breakout stocks

There are many ways to find breakout stocks. My method consists of two discrete scans, which each must pass before I buy a stock. Many investors depend on technical analysis alone, while others depend on fundamental analysis. I depend on both. The two parts of my method scan for technical and fundamental soundness.

1) Technical scanner
This is the first scanner to run. The scan consists of finding all stocks that are breaking out to new 52-week highs on very high volume. The technical scanner is necessary because I only want to invest in stocks that are taking off. I don't want to waste my time with sleepers.

2) Fundamental scanner
The fundamental scanner is key. You don't want to just jump into any stock that is breaking out, following the momentum trade of the day. If you did this you would find yourself constantly 'behind the 8-ball'. The fundamental scanner checks many fundamental aspects of the companies behind the stocks that passed the technical scan. Things like Sales, margins, return on equity, earnings growth, institutional ownership, etc. This is absolutely necessary. In order for large funds to get excited about a stock, there often needs to be great fundamental growth behind the company.

If a stock passes both scanners then I simply buy it.

Taken together, this is how you find breakout stocks that are going to make you a lot of money. Of course, managing a trade once you have invested is another story all together.

via - stockchat.com