Not only is Akamai Technologies (AKAM) triggering another successful breakout trade right now, but we can step inside the history of repeated breakouts and learn a real-world trading lesson from this stock from prior outcomes.
Let’s start with the Weekly Chart, highlight the breakout, and focus on what this stock can teach us now:
I highlighted five prior breakouts (green and red arrows) on weekly chart above as the uptrend strengthened.
Let’s start with principle #1:
“Stocks which are strong tend to get stronger, not weaker”
In other words, trends – once established – have greater odds of continuing than of reversing.
AKAM exemplifies this trading principle very well.
If we are to assume that trends are more likely to continue than reverse, then we craft our real-time trading strategies to take advantage of that tendency.
The easiest way to do so is to wait patiently for bullish retracements to support (buying as price touches a rising moving average) or on price breakouts to new highs.
Personally, I prefer retracement or “flag” style trade set-ups but AKAM reminds us that we can gain some quick, easy profits from buying a breakout to new highs.
When price breaks through a resistance level – or prior price high – it forces a decision.
For Bulls, the decision is whether or not to buy right now (risk missing profits) or add to existing positions.
For Bears, the decision is whether or not to buy-back to cover a position that is rapidly losing money.
The combination of Bulls Buying (to put on risk) along with Bears Buying (to take off risk) can create multi-day rallies where swing and intraday traders can profit efficiently.
Note each time price broke to a new level (green arrows) and compare that to the one red arrow through 2014 where a weak, divergent breakout resulted in a “Trap” or failed breakout.
See Part 2 in this series which focuses on “What We Can Learn from the FAILED Breakout – How to Avoid Traps.”
We can zoom-in to the Daily Chart to highlight the most recent breakouts (two of them recently):
Let’s focus on the $ 65.00 per share level through 2015.
Price traded up into this level twice after peaking and falling in September.
Buyers were unable to push the price beyond the level and thus a breakout did not occur (or trigger).
As mentioned earlier, there were retracement trading opportunities (blue arrows) during this time.
However, February saw a positive momentum divergence precede a powerful, gapping swing back toward $ 65 but this time buyers shattered the level (with the help from short-sellers).
The result was a powerful breakout and three days in a row straight up.
Swing traders can enter as close as possible to the breakout and hold on as long as possible until price breaks under a steep rising trendline or under a reversal candle low.
Intraday traders can trade more aggressively, buying intraday pullbacks or smaller intraday breakouts during the three days of breakout strength.
We’re seeing the same thing happen currently with a Triangle Breakout and (so far) three days of one-sided bullish price action.
Continue monitoring the current breakout and feel free to study any and all prior breakouts in this strong stock.
Be sure to study Part 2: “What We Can Learn from Three Failed Breakouts in AKAM – How to Spot a Trap.”
Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade