No matter if the market is trending or aimlessly floating sideways, there will always be breakouts in the morning. A breakout is defined when a stock gaps up or down on high volume first thing on the open. These types of moves are almost always related to a news event.
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| Tata Motors |
Day Trading Breakout Rules
- Stock gaps up or down on high volume.
- Wait for a trading range to develop between 9:30 and 9:50.
- Buy or sell short the breakout of the morning range high/low sometime between 9:50 am and 10:10 am.
- Have a predetermined profit target for your position. Your profit target should be in alignment with the volatility of the stock.
- You must have a stop loss order. My personal stop is a maximum of 2% and I look to exit trades if they are not profitable once the 11 am time strikes.
You may be thinking what's up with the time references? Day trading is fast, so you only have a set amount of time to capitalize on each trade. At 11 am the number of participants in the market drops off dramatically and you will find it very difficult to trade breakouts. So, get in and out in a hurry; time is not on your side.
Trader Profile - Day Trading Breakout
- Expects quick returns
- Perceives volatility as their friend
- Able to make trading decisions in a matter of seconds
- Less concerned with riding the trend and more attracted to making quick profits before the trend reverses course
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