Good morning, traders…

I used to think breakout trades were all about timing the break precisely…

See the move, hit the button, ride the momentum. But the longer I’ve traded, the more I’ve realized the real work happens before the move starts.

The best breakouts I’ve ever traded didn’t catch me off guard. They gave clues. Clear levels, tight price action, steady volume. 

And once I learned to spot those setups early, I started nailing breakout trades with consistency.

You have to know what to look for when the breakout pattern is forming. Because by the time it’s running past resistance, it’s too late. 

Today, I’ll walk through what a quality breakout setup looks like, how I plan the trade, and why the early signs on the chart are often more important than the breakout itself.

I’ll show you how to have a plan before the key resistance breaks, so you’re already in the options when they start exploding to the upside…

What Makes a Breakout Worth Trading?

My number one setup is the breakout pattern.

A breakout happens when a stock breaks above a key resistance level (a price the stock has historically struggled to trade above). 

These levels are like invisible walls on the chart, and when they break, huge moves to the upside often follow. 

When this happens on strong trading volume, it’s often a signal that a new trend is starting, and you could catch the next leg up at the perfect moment. 

But after two decades of trading, I’ve learned that what happens before the breakout is what matters most. 

Some breakouts run for days. Others fail instantly. The difference usually comes down to the quality of the setup in its early stages. 

Here’s what I look for in every breakout pattern:

1. Tight consolidation near a clear resistance level
   A strong breakout usually comes after price action gets quiet and compressed right under resistance. If the candles are getting smaller and overlapping, with clear support holding underneath, that’s a positive sign.
   
2. Volume gradually picking up into the setup
   You don’t need a massive volume spike right away. But when volume starts to increase slightly on up days, that shows buyers are getting active early. It’s a sign that demand is building.
   
3. Clean levels with repeat tests
   A strong breakout level gets tested multiple times. The more often a stock knocks on the same ceiling, the more likely it is to break through with strength when it finally clears it.
   
4. Orderly charts with consistent price action
   If the chart is wild or full of failed breakouts and fakeouts, I usually pass. The best setups look obvious in hindsight because they followed clean, predictable price behavior.

Prepare Before the Breakout Occurs

Once I find a breakout setup, I mark my level, define my risk, and set an alert. 

I don’t want to jump the gun and buy into resistance. I want the stock to prove it can break out and follow through.

That means I wait for the breakout to happen with confirmation. Price should move through resistance with strength and increased volume. 

Not just a quick pop, but a clear shift in momentum.

The trick is to do all your prep work while the chart is still quiet. That way, when the move triggers, you’re ready to act quickly and decisively. 

You’re not scrambling to figure it out in real time because you’ve already set the terms of the trade beforehand. 

A “Golden” Breakout Example

Gold is one of the best long-term breakout examples in recent memory…

For nearly four years, the SPDR Gold Trust (NYSEARCA: GLD) was rangebound between $150 and $193.

Time and time again, it would attempt to break out into the $200s, and fail…

But in March 2024, that changed. GLD finally made the break above $193 on heavy volume.

And look what happened next:

Since breaking above $193, GLD has surged 50% in a year. And in hindsight, we could see the structure forming throughout all of 2023. 

When the stock finally made its move above $193, it did so with serious strength and never looked back…

4 Tips for Identifying Breakouts Early

• Breakouts build up (and leave clues) before they happen.
  
• Look for tight consolidation near resistance with rising volume.
  
• The best breakout levels are obvious. If it’s clear to you, it’s probably clear to a lot of other traders too. That means you need to have the level marked before it breaks.
  
• Preparation always beats reaction. Know your levels, your risk, and your target before the stock moves — and stick to them. 

The next time a stock looks like it’s just chopping sideways near resistance, don’t ignore it. Take a closer look. 

That kind of understated strength might just lead to a massive breakout. 

Happy trading,

Ben Sturgill

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