In our first ‘Acceleration Breakouts” article last month, we looked at how this pattern works for stock and ETF swing trades. In this article, we’ll focus on a strong combination pattern, in which an acceleration ramp is followed by an in-trend gap.
Acceleration Breakouts with Gap Continuations
When the slope of the trendline goes from a slow uptrend to a sharper-angle breakout trend over multiple days, an acceleration ramp pattern is formed. This is such a strong pattern that it will often be followed by an in-trend gap continuation, for an even bigger upside breakout.
For example in Figure 1 – Youku Tudou, Inc. (YOKU) [15-day chart], the initial “acceleration breakout” occurred from May 5th through May 20th. Then on May 21st, a minor gap in price action led to a significant 7-point upside breakout during May 21st and 22nd.
Significant buying volume was also seen during the first part of the day on May 21st, indicating institutional buying was at work accumulating additional YOKU shares. This led to a substantial increase in share price. It all started with the basic acceleration breakout pattern that was easy to see during the 3 weeks prior to the gap.
Additional Insights for Breakout Swing Trades
Any good professional trader will tell you that successful breakout trading all comes down to simple price action and volume. Understanding the nuances, the “story of buyers versus sellers”, is all readily seen in the chart patterns.
Using a combination of 3 strong signals in this chart helped identify the likelihood of a continuation, in this example going from $19/share to $31/share in a matter of a few short weeks:
Signal #1: Initial uptrending 2-step ‘acceleration breakout’ pattern
Signal #2: Minor gap following the uptrend continuation
Signal #3: High volume on the May 21st gap day, revealing net long buying pattern on the open
By using several simple, strong signals together, it becomes easier for active traders to rapidly scan through potential charts to identify the most-likely candidates for making winning trades.
Recommended resource: For more on using this and other trading strategies, see the author’s complimentary Saturday “Trading Week Ahead’ webinar events at DaytradingUniversity.com/free.
Ken Calhoun is a trading professional who has traded millions of dollars of equities since the 1990s, and is the producer of multiple award-winning trading courses and video-based training systems for active traders. He is a UCLA alumnus and founder of TradeMastery.com and DaytradingUniversity.com/free (with Steve Nison), popular online educational sites that reach tens of thousands of active traders worldwide.
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