Obvious Breakout System
Trading Strategy

The first thing you need to look for in this breakout strategy is the trend of the stock. Stock trend can be determined in many different ways. Look at the weekly chart below. You can easily see that the trend is up. Also look at the RSI(14), notice that it is above the 50 line. Now see how price has remained above the blue Moving Average 50 (ma50) line, and the MACD has stayed above the 0 line. Stock trend is a very important part of most online trading systems.

After a run up stocks loose their steam. The buying pressure eases off and people begin to take their profit. This is not the time to be buying into a stock. This is when the novices get burned. They buy too late and when the stock goes down they sell to the professionals who are getting in just in time for the next rally. Look at the Chart below and notice how the stock has to stop and pullback before continuing the uptrend.(In a downtrend, which is just the opposite of an uptrend, you have temporary rallies which are just the opposite of Pullbacks. This can be used for shorting stocks.)

After a pullback the stock resumes its uptrend. When the price breaks above the level of the highest close of the previous uptrend it is call a BREAK-OUT, as shown in the chart below. Sometimes you can have a false or failed signal. I will show you later how to guard against this.

Joe Granville developed the On Balance Volume (OBV) indicator. This indicator measures positive and negative volume flow. The thought is that volume precedes price. The OBV is an indicator that adds a period's volume when the close is up and subtracts the period's volume when the close is down. These additions and subtractions form the OBV line. We will learn later how to effectively use this indicator.

Putting It All Together

In the next section we will tie all of these things together to form our stock market trading strategy, so you can make money online trading. Go to Breakout Strategy.