Volatility is a trader’s best friend because it represents a stock’s price surges.
As traders, we can make money off these aggressive movements no matter if the stock goes up or down, and there is a lot of opportunity right now for us to make volatile profits.
For example, take a look at Newegg Commerce, Inc. (NASDAQ: NEGG).
One quick glance at NEGG
‘s chart shows that you could have predicted its explosive rally almost a month before it happened.
With the Volatility Index ($VIX) nearly surpassing the 25 level yesterday, it’s now more important than ever for you to know how to predict these price surges.
That’s why today, I’m going to break down the anatomy of a breakout stock.
Each breakout has some signatures that are telling of upcoming activity.
In the same way that your reflexes kick when the doctor hammers your knee… a stock will reflex aggressively when three specific things happen at the same time.
Every single stock on the market, whether it’s $20 or $2,000, behaves like this.
Here’s how to tell which stocks will break out…
First, Look For a Shift in Momentum
Before I begin, let me be perfectly clear: eyes and experience are the two most important things when identifying a breakout stock.
That’s why I personally use my proprietary system when doing my research.
And the first thing I look for is a shift in momentum.
I’m specifically talking about a shift in momentum within normal distributions.
It’s not a spike because we’re predicting the spike and positioning ourselves to profit before the spike happens.
Instead of a spike, the statistics are completely normal.
This part is absolutely crucial – the statistics must be normal.
Decades of research on price data shows that they follow normal distributions.
“Normal” activity means that the prices are moving within a certain tolerance, like Bollinger bands, aka volatility bands.
We must be extremely aware of the statistical significance of stock prices and their tendency to follow normal distributions.
But by tracking normal distributions, we can also predict when the stock will make an unusual breakout.
Once a shift in momentum has been established…
Second, Mind the Technicals
I always say that the technicals matter.
Well, they matter even more when you’re predicting an explosive breakout.
The reason that they matter more is because the market reacts to technicals.
You see, signatures of a breakout are increased in the slope of a 20- and 50-day moving average.
That’s just a fancy way of saying that you’re looking for a steep shift in the technical trend.
Like I say, the trend is your friend.
The two most watched trends are the 20- and 50-day moving averages.
Typically, a bullish crossover will precede a bullish breakout, and a bearish cross under suggests an upcoming breakdown.
Once you’ve checked the trend…
Third, Check the Volume
Tracking the daily volume of a stock against its averages almost always identifies when price surges are coming.
That’s because a reliable breakout can’t happen without a sudden surge in volume.
If we have a surge in prices… without a surge in volume… the rally will fizzle out because the market is not participating in it.
On the other hand, the strongest sign of an imminent breakout is increasing volume while technicals are shifting.
This is because volume shows that the market is participating in the price surge.
Volume is what turns a price surge into a profitable opportunity.
But if you’re buying after the volume surge, aka crescendo volume, it’s too late and you’ve missed the opportunity.
Monitoring all three signs, at the same time, will allow you to identify a breakout stock before it rallies higher.
You can use these three to predict explosive price surges with every single stock on the market.
They all fall into these fundamental behaviors.
This works on $2, $20, and even $2,000 stocks.
We are amidst one of the most volatile, unpredictable markets of recorded history.
It’s absolutely crucial you know how to profit from volatility.
There are $11 million up for grabs, every second of every day, in today’s volatile market.
That’s why my colleague, Tom Gentile, programmed a proprietary system that can find 1,000 different volatility “Trigger Events” every single month, with a 99.7% accuracy rate.
I’ve asked him to show Straight-Up Profits readers how he finds them, and he’s graciously agreed.
To learn more about this trading system, click here…
And tomorrow, I’m going to show you how to use this system on $0.02 micro-cap stocks in the next edition of Straight-Up Profits.
So that you can position yourself for big profits, with a micro-cap stock that won’t hurt your wallet.