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Here’s What a Textbook Breakout Looks Like


Last week, I explained how to enter a stock position without getting ripped off.

I told you about the bid/ask spread and how entering a position in pre-market trading ahead of the opening bell could leave your trade underwater quickly.

As an example, I showed you the spread on HCI Group, Inc. (HCI), which at the time was trading for $126.67.

You can read the full article right here if you haven’t done so already…

But the main takeaway was that you should only place trades between the regular market hours of 9:30 a.m. ET and 4:00 p.m. ET.

Well, when 9:30 rolled around last Thursday, HCI group ripped higher and ultimately ended the full week up by 17%.

With that as a bit of background, today I want to explain why I was watching HCI in the first place.

The massive gain last week came following a textbook chart setup, so let’s get right into it…

How Stealth Trades Turn into Big Breakouts

In addition to writing Traders Daily Direction, I also run my premium newsletter service called Stealth Trades.

And every Monday afternoon, Stealth Trades members and I get together in our live trading room and review the market.

We look at stocks setting up for the week and review exactly where we plan to buy and sell.

As noted, one of last week’s stocks was HCI. Take a look at the chart setup below…

Daily Chart of HCI Group, Inc. (HCI) — Source: TradingView

This textbook setup immediately caught my attention. It had all of the hallmarks of a great breakout in the making.

After making a big run higher, the stock began to compress into a narrower and narrower range.

Pullbacks tightened from 15% down to 5%, creating a low-risk entry point at $115.45.

Volume also dried up in the week leading up to the breakout.

This let us know that the selling had been exhausted. The profit-taking period was over, and new supply was no longer coming to market.

All we needed now was a move through resistance, and the stock would be off to the races.

The green line on the chart above was the breakout entry point. The red line was the stop loss.

So, with my plan in place, I bought HCI on Monday right when it hit our entry trigger.

Three days later, I exited the trade for a nice gain.

My Trade in HCI Group, Inc. (HCI)

And the stock continued to climb even higher into this week.

If you were in last Monday’s live Stealth Trades session and took this trade, you should be up around 16%.

At this point, I suggest raising your stop to $128.35 or taking profits here.

Remember, taking quick profits is one of my four big breakout commandments.

Now, I do provide a ton of great trading advice here at Traders Daily Direction

That includes the weekly Watchlists with tons of great ideas, plus guidance on the principles of successful trading I’ve developed over my career.

But if you want to get in on the real action — live in my trading room — and take your trading to the next level of profitability…

You need to join me at Stealth Trades.

You’ll get more detail, more guidance, more ideas and, most importantly, access to my live sessions.

If you’re not yet a Stealth Trades member, I encourage you to join right here.

It is the only place I teach all of my trading techniques live.

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