How to Track Breakthrough Stocks

by Walter Johnson

A so-called breakthrough stock is a stock whose value is expected to increase dramatically in the near term. A stock breaks through its normal volatility average when it rises suddenly and steeply. For example, if a stock's price moves an average of $2 to $3 dollars in any given month and in either direction, and then that same stock's price goes up $20 in one day, that is considered a breakthrough stock.

1. Average each stock's daily price behavior. This is called the pivot point. For each stock trading day, take the low, middle and high prices for that day and divide by three. This is the pivot point, and can be used for a single day, week, month or year. It is your general, rough average of the stock's movement over time.

2. Subtract the high and low price variations in figuring the high and low averages for the stock. These are called the resistance and support values for the stock in question. The resistance, or its ceiling, is figured by taking the pivot figure, multiplying by 2, and subtracting the lowest price. You then do the same for the support, or the price floor, except you subtract the highest price. The object here is that for any given day, you have an accurate picture of the high and low averages for a stock. You can do the same over a week or a month.

3. Read and research about the stock. If its resistance points are growing, even rapidly, you might have a developing breakthrough. You need to read up on the company's recent news because this can indicate why the resistance is growing. If a firm is reporting to be on the verge of a cure for a disease, for example, then that firm is poised to make a huge splash in medicine, but also on the markets. If the reports are true, then this can explain the increasing resistance points. It also suggests that this stock might be ready to take off.

4. Balance qualitative and quantitative variables when tracing potential breakthroughs. There is no obvious indicator that a stock is ready to break out of its resistance level. Even a slow resistance growth might say little more than the firm is having a good week. A breakthrough happens for a rational reason. In predicting a breakthrough, both sorts of variables must be used in the analysis.

About the Author

Walter Johnson has more than 20 years experience as a professional writer. After serving in the United Stated Marine Corps for several years, he received his doctorate in history from the University of Nebraska. Focused on economic topics, Johnson reads Russian and has published in journals such as “The Salisbury Review,” "The Constantian" and “The Social Justice Review."

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