{"id":3486,"date":"2013-12-03T13:25:32","date_gmt":"2013-12-03T18:25:32","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=3486"},"modified":"2022-04-06T15:05:05","modified_gmt":"2022-04-06T19:05:05","slug":"volume-breakout-bita","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/volume-breakout-bita\/","title":{"rendered":"How Monstrous Volume Powered This Breakout Stock To Our 37% Gain"},"content":{"rendered":"<figure id=\"attachment_3493\" aria-describedby=\"caption-attachment-3493\" style=\"width: 300px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-3493  \" alt=\"$BITA launches for US trading\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/BITA-300x200.jpg\" width=\"300\" height=\"200\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/BITA-300x200.jpg 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/BITA-110x73.jpg 110w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-3493\" class=\"wp-caption-text\">Bitauto goes IPO (courtesy of NYSE Euronext)<\/figcaption><\/figure>\n<p>After a bit of a blogging break over the Thanksgiving holiday week, we&#8217;re back. Miss us?<\/p>\n<p>Today, we walk you through the anatomy of a volume-driven breakout stock trade from\u00a0<em><a title=\"Learn more about The Wagner Daily\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">The Wagner Daily<\/a><\/em> newsletter that led to a <strong>37% gain over a 1-month holding period.<\/strong><\/p>\n<p>When doing our nightly stock scanning research, both manually and with the <a title=\"MTG Stock Screener\" href=\"https:\/\/morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">MTG Stock Screener<\/a>, one thing that always catches our attention is a <em>stock that suddenly jumps sharply higher on a massive volume spike.<\/em><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/volume-breakout-bita\/#Volume_Powers_Chinese_Internet_Stock_Rocket\" >Volume Powers Chinese Internet Stock Rocket<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/volume-breakout-bita\/#The_Breakout_Buy_Setup\" >The Breakout Buy Setup<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/volume-breakout-bita\/#Riding_The_Volume_Wave_To_Trading_Profits\" >Riding The Volume Wave To Trading Profits<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/volume-breakout-bita\/#Wash_Rinse_Repeat\" >Wash, Rinse, Repeat<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Volume_Powers_Chinese_Internet_Stock_Rocket\"><\/span>Volume Powers Chinese Internet Stock Rocket<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In the first half of August, Bitauto Holdings ($BITA) rocketed approx. 40% higher in just two days.<em> <\/em>More importantly, volume surged to <em>more than 700% its average daily level.<\/em><\/p>\n<p>That<strong> monstrous uptick in volume was a key signal<\/strong> because it clearly pointed to\u00a0<em><a title=\"Learn about the power of institutional accumulation\" href=\"https:\/\/education.investors.com\/investors-corner\/650244-use-accumulation-to-gauge-institutional-demand.htm\" target=\"_blank\" rel=\"noopener\">institutional accumulation<\/a>,<\/em> which acts as a gas pedal that powers the best stock breakouts.<\/p>\n<p>Additionally, such big volume acts as a leading indicator that points to the likelihood of further price appreciation. Here is a snapshot of that initial, high-momentum breakout action:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-3489\" alt=\"$BITA breakout in August, 2013\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA1.png\" width=\"808\" height=\"642\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA1-110x87.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA1-300x238.png 300w\" sizes=\"auto, (max-width: 808px) 100vw, 808px\" \/><\/p>\n<p>Obviously, the above price and volume action definitely caught our attention. As a bonus, we liked that $BITA also belonged to an industry sector that was showing a lot of relative strength at the time (Chinese Internet\/technology).<\/p>\n<p>Nevertheless, whenever a stock breaks out and zooms 40% higher over just a few days, we know this type of move usually requires at least a few weeks for the price to settle down and build another base of consolidation (<a title=\"Learn about basing patterns that precede the best stock breakouts\" href=\"https:\/\/www.morpheustrading.com\/blog\/best-stock-breakouts\/\" target=\"_blank\" rel=\"noopener\">click here<\/a> to learn how the best stocks build valid bases before breaking out).<\/p>\n<p>Although there are exceptions, most stocks demonstrating such swift breakout momentum simply cannot immediately provide us with a low-risk entry point that provides a positive reward to risk ratio.<\/p>\n<p>But the good news is that such powerful, high-volume\u00a0<em>breakouts from valid bases of consolidation merely set the stage for much greater price gains to come.<\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Breakout_Buy_Setup\"><\/span>The Breakout Buy Setup<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>After the initial move out in $BITA, we put this high-momentum stock on our watchlist to observe subsequent price and volume action.<\/p>\n<p>Specifically, we were now<em> looking for a base of consolidation to develop over the next 2 to 5 weeks,<\/em> which would set the stage for another breakout entry.<\/p>\n<p>The buy entry in our newsletter and managed accounts finally came on September 5, when we bought $BITA at $14.48 (just above the short-term downtrend line that had developed):<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-3490\" alt=\"$BITA breakout buy entry\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA2.png\" width=\"808\" height=\"642\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA2-110x87.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA2-300x238.png 300w\" sizes=\"auto, (max-width: 808px) 100vw, 808px\" \/><\/p>\n<p>Our buy entry was confirmed by a big volume spike (shown above), and was also preceded by five days of tight-ranged trading (including an <a title=\"Explanation of an inside day\" href=\"https:\/\/tradingsim.com\/blog\/inside-day\/\" target=\"_blank\" rel=\"noopener\">inside day<\/a> immediately prior to our September 5 buy entry).<\/p>\n<p>The <strong>best and most reliable stock breakouts are usually preceded by a tightening of price action<\/strong> for at least several days before breaking out of their bases of consolidation, and the price action of $BITA fit the bill.<\/p>\n<h2><\/h2>\n<p>Next, let&#8217;s take a look at what happened after our breakout buy entry:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-3491\" alt=\"Sold $BITA after breakout to lock in gain\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA3.png\" width=\"808\" height=\"642\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA3-110x87.png 110w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/12\/131203BITA3-300x238.png 300w\" sizes=\"auto, (max-width: 808px) 100vw, 808px\" \/><\/p>\n<p>Within nine days of buying the stock, the price had drifted back down to our initial buy entry (the pink horizontal line on the chart above).<\/p>\n<p>However, we were not concerned because a subsequent pullback to new support of the breakout level is relatively common, and has the benefit of shaking out the &#8220;weak hands.&#8221;<\/p>\n<p>Also, the pullback was not of consequence because the price action was still tight and basing out, while never really breaking below near-term support of its 20-day exponential moving average.<\/p>\n<p>Above all, our protective stop was already in place at the time of buy entry (just below the prior &#8220;swing low&#8221;), and we were relaxed because of our zen-like <a title=\"Why Winning Traders Use A Set It And Forget It Approach To Stops\" href=\"https:\/\/www.morpheustrading.com\/blog\/set-it-and-forget-it\/\" target=\"_blank\" rel=\"noopener\">&#8220;set it and forget it&#8221; approach<\/a> to placing stops.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Riding_The_Volume_Wave_To_Trading_Profits\"><\/span>Riding The Volume Wave To Trading Profits<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>After the mid-September pullback that followed our breakout buy, buyers stepped back into the stock, and <strong>bullish momentum again caused $BITA to explode\u00a040% higher just six days after breaking out<\/strong> above the highs of the base (note the breakout volume spikes on October 1 and 2).<\/p>\n<p>After the price of $BITA spiked above the $20 level, we made a judgment call to trail a tight stop below the prior day&#8217;s low in order to lock in gains in the event of a sharp pullback.<\/p>\n<p>On October 8, $BITA finally broke below the prior day&#8217;s low and hit our trailing stop, enabling us to<em> lock in a solid 37% gain on a one-month swing trade.<\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Wash_Rinse_Repeat\"><\/span>Wash, Rinse, Repeat<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>As is frequently detailed on this blog, stocks and ETFs trading at new 52-week or all-time highs typically repeat the &#8220;base, breakout, base, breakout&#8221; cycle several times before eventually entering into a substantial correction, as there is a complete lack of overhead supply (no technical price resistance).<\/p>\n<p>As such, it&#8217;s not surprising that $BITA subsequently built yet another four-week base, then broke out again (the stock is currently trading around $32).<\/p>\n<p>In this case, we did <em>not<\/em> re-enter $BITA after the next base that formed. However, we frequently do re-enter the strongest stocks through buying each base breakout, then selling into strength before the next base forms.<\/p>\n<p><em>To profit alongside of our next big breakout play, <strong><a title=\"Start Your Risk-Free Subscription To The Wagner Daily\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">get started today<\/a><\/strong> with your 30-day risk-free subscription to The Wagner Daily swing trading service.\u00a0<\/em><\/p>\n<div class=\"cfmonitor\"><center><script type=\"text\/javascript\"><!--\ngoogle_ad_client = \"ca-pub-7565144363001883\";\n\/* Footer of content *\/\ngoogle_ad_slot = \"7002222565\";\ngoogle_ad_width = 300;\ngoogle_ad_height = 250;\n\/\/-->\n<\/script><br \/>\n<script type=\"text\/javascript\"\nsrc=\"\/\/pagead2.googlesyndication.com\/pagead\/show_ads.js\">\n<\/script><\/center><\/div>\n","protected":false},"excerpt":{"rendered":"<p>After a bit of a blogging break over the Thanksgiving holiday week, we&#8217;re back. Miss us? Today, we walk you through the anatomy of a volume-driven breakout stock trade from\u00a0The Wagner Daily newsletter that led to a 37% gain over a 1-month holding period. When doing our nightly stock scanning research, both manually and with [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-3486","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3486","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=3486"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3486\/revisions"}],"predecessor-version":[{"id":11350,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3486\/revisions\/11350"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=3486"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=3486"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=3486"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}