Acceleration Breakouts: Part I

Ken Calhoun |

Scanning for emerging breakouts can be a time-consuming activity. To simplify the process, it helps to know which chart patterns are most likely to continue in-trend after entering a position. In this article series, we’ll explore how to find and trade the author’s “Acceleration Breakout” strategy, designed to help stock abd ETF traders locate the strongest visual price-action entry patterns.

Acceleration Breakouts Defined

An acceleration breakout is found on a chart in which the slope of the trendline goes from a slow, steady uptrend to a sharper-angle breakout trend over multiple days. This pattern indicates stronger sustained institutional buying at work, leading to a faster increase in average share price. Trading these momentum plays can provide excellent breakout trading opportunities, when done correctly.

For example in Figure 1 – Noah Holdings Ltd. (NOAH) [90-day daily chart], the initial slow uptrend occurred from mid-March through April 4th. The subsequent “acceleration breakout” then came afterwards, as price rose sharply in a 45-degree angle breakout from April 5th through 24th.

Fig1_NOAH.gif

One of the most important considerations to keep in mind is that the early uptrend needs to be slow and steady over multiple days (preferably two weeks or longer). Traders run into trouble trying to over-trade unsteady, quick momentum breakouts that turn into false breakout entries. 

Instead, looking for a slow, steady 2-week or longer stable uptrend that then becomes a sharper-angle ‘acceleration ramp’ can provide stronger, steadier entries that are more likely to continue upwards. Scanning for these patterns should initially be done on 90-day daily candlestick charts. Often 52-week high breakouts are also good candidates to start looking at, to find examples of this valuable breakout entry pattern.

Acceleration Breakout Swing Trades

When looking for acceleration breakouts in swing trading, a 15-day 5-minute candlestick chart is used. For example, the swing trading chart seen in Figure 2 – iShares MSCI Brazil Capped ETF (EWZ) illustrates this breakout pattern. 

Fig2_EWZ.gif

The initial slow, steady uptrend occurred from April 8th through 21st. The subsequent “acceleration breakout” happened April 22nd through 24th. Entries are made $1.50 above the 15-day high (to potentially avoid false breakouts), with an initial $2 initial and trailing stop. This pattern is best used with stocks and ETFs priced in the $20 - $70/share range, with minimum 1 million shares/day volume.

This simple, strong visual price-action breakout trading pattern has been one of the author’s favorites since the 1990’s. It tells a story of increasing price momentum, and helps separate choppy, uncertain charts from steady, conservative, strong breakouts. In our next article we’ll look at additional techniques to use when trading acceleration breakout entries.

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 DaytradingUniversity.com and StockTradingSuccess.com (with Steve Nison), popular online educational sites that reach tens of thousands of active traders worldwide.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
NOAH Noah Holdings Limited 24.02 0.00 0.00 125,143

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