SMB Training provides educational seminars and training courses on trading, both online and in-person. They are for educational purposes only and do not constitute investment recommendations or advice. Hypothetical performance results are presented but past performance is not a guarantee of future results. When considering a breakout trade, factors such as the significance of the breakout level, prior price action, available upside room, market environment, and volume behavior should be examined.
2. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training.
SMB TRAINING offers a number of products and services, both electronical (over the internet
through smbtraining.com) and in person. SMB TRAINING also offers web-based, interactive
training courses on demand.
The seminars given by SMB TRAINING are for educational purposes only. This information neither
is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell
securities. You shall be fully responsible for any investment decision you make, and such
decisions will be based solely on your evaluation of your financial circumstances,
investment objectives, risk tolerance, and liquidity needs.
This material is being provided to you for educational purposes only. No information presented
constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any
security, financial product or instrument discussed therein or to engage in any specific
investment strategy. The content neither is, nor should be construed as, an offer, or a
solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any
investment decisions you make. Such decisions should be based solely on your evaluation
of your financial circumstances. Such decisions should be based solely on your evaluation of
your financial circumstances, investment objectives, risk tolerance and liquidity needs.
SMB Training and SMB Capital Management, LLC are separate but affiliated companies.
No relevant positions
Please note: Hypothetical computer simulated performance results are believed to be accurately
presented. However, they are not guaranteed as to accuracy or completeness and are
subject to change without any notice. Hypothetical or simulated performance results have
certain inherent limitations. Unlike an actual performance record, simulated results do not
represent actual trading. Since, also, the trades have not actually been executed; the results
may have been under or over compensated for the impact, if any, of certain market factors
such as liquidity, slippage and commissions. Simulated trading programs in general are also
subject to the fact that they are designed with the benefit of hindsight. No representation is
being made that any portfolio will, or is likely to achieve profits or losses similar to those
shown. All investments and trades carry risks.”
3. Price moves above/below an important price
Intra-day breakouts
◦ Opening Range
◦ LOD/HOD
◦ Large Buyer/Larger Seller
Multi-day breakouts
◦ H/L of established ranges
◦ Intermediate Breakout vs. Full Breakout
4. It trends until there is sufficient supply
to end trend then it establishes a new
trading range
5. An imbalance of supply/demand causes a
breakout
◦ Either buyers or sellers become more aggressive as
their isn’t sufficient supply to meet demand
Therefore a breakout should be a signal that
a large move is about to occur
6. There isn’t a sustained imbalance of supply
How do we spot these failures? TIME
◦ The simplest way to judge a failed breakout is a failure
to hold above/below the breakout price for your trading
time frame
Mispricing when the market opens
◦ These quickly correct
◦ A lack of liquidity in the first 15 minutes causes stocks
to move through important levels until more orders
enter
◦ This has become extremely prevalent in past decade as
HFT are primary market makers and don’t want to risk
capital right on market Open
7. Stocks In Play
I have 3 resources
◦ SMB Scanner
◦ StockTwits
◦ SMB Radar
I also have my “MoMo” list of stocks
◦ LNKD, NFLX, GMCR, FSLR, CREE
9. Let me offer a few things for you to
consider prior to committing to a
breakout trade.
10. 1. How significant is the level that the stock is
about to break through?
The significance of the level is determined by how many
market participants are focused on the level.
2. Is the breakout occurring from a base or has
the stock been trending in the direction of the
break for several days already?
• A break that occurs after an extended move may offer
less upside initially, but over time match the magnitude
of a break from a base
• A break from an extended move is far more likely to
fail initially
• A break from a base that has a surge in volume will
follow through 80% of the time
11. 3. How much room is there to the next significant
support/resistance area?
If the next S/R area isn’t at least 3X the risk of entering
trade than not particularly good opportunity
4. What type of market are we in?
Uptrend/Downtrend/Range
Uptrend is best market for sustained breakouts in either
direction
5. What is the price action history of the stock on
prior breakouts?
• This is such an important factor as stocks will continue
to have the same many of the same participants over
time and traders like most human beings are repetitive
in their behavior
• What does the stock typically do on the first day of a
breakout, second day, third day etc....
12. 6. How much time above/below a breakout level is
sufficient to consider the breakout successful and
thus worth committing additional risk?
• For intraday breakouts right on the Open 2-3 minutes is
sufficient
• For intraday breakouts after the Open the minimum is
10 minutes
• For swing trade breakouts look for a daily close through
the level
7. How should the stock behave when it breaks
through the support/resistance level?
There should be a surge in trading activity
13. 8. How many times has the stock failed to break
through the breakout level?
If a stock has failed to breakout from a level after 3-4
attempts I become very skeptical
If I am skeptical I really want everything to line up just right
to put on significant risk: aggressive buying, bids holding,
good surge in volume
The flip side is if a S/R level has not broken many times and
the stock has traded significant volume at the level traders
would be trapped on a successful break
14. #1 Momo stock
Uptrend on every time frame
History of 10-20 point breakouts
Intermediate and full breakouts
15.
16.
17. In a “momo sector” 3D printing
Several recent failed intermediate breakouts
Large multi-month consolidation
18.
19.
20. Broken stock/Broken sector
Formed a recent base
Broken recent most recent downtrend 2
weeks ago