How To Score Monster Gains From Trading Breakaway Gaps

Some of our biggest winning stock picks result from buying the “breakaway gap” chart pattern.

In this post, we walk through an actual +29% winning breakaway gap trade to show you how to easily find and profit from trading breakaway gaps.

A breakaway gap occurs when the opening price of a stock or ETF gaps above technical price resistance (gap up) or below support (gap down).

Breakaway gaps frequently occur early in the start of a trend and show conviction in the direction of the new trend.

The breakaway gap chart pattern can yield monstrous gains for momentum swing traders, but only with a clear understanding of the specific buy signals and the proper time to enter.

Continue reading to find out exactly how to recognize a breakaway gap and when to buy it–based on our +29% gain in Everquote ($EVER), a recent Wagner Daily stock pick.

How To Find A Breakaway Gap Pattern

A breakaway gap up can be an extremely bullish signal IF the gap emerges from a valid basing pattern that is confirmed by bullish price and volume action.

Below are five specific signals to help you identify valid breakaway gap trade setups.

5 Signals To Find The Best Breakaway Gap Ups

  1. A breakaway gap should be preceded by a valid basing pattern at least four to five weeks in length. The longer the consolidation, the more powerful the breakaway gap may be.
  2. Volume on the gap day should be at least three times (300%) greater than average (based on 50-day average volume). In many cases, especially with small and mid-cap stocks, volume may even surge to five to ten times greater than average.
  3. A breakaway gap up should open at least 4-5% above the prior day’s close–some of the best gaps are 5-10% higher or more. However, an opening gap of more than 30% is a bit too much and could lead to a few months of chop, rather than immediate upside follow-through. Swing traders don’t need to buy on the gap day, so we have the luxury of waiting to see price and volume action before entering.
  4. The opening price of the gap day should be above the high of the base of consolidation (resistance). However, an opening gap slightly below the high of the base may still be bought IF the move is confirmed by price and volume.
  5. The closing price of the gap day should be above the opening price, or at least near the open. We generally avoid breakaway gaps where the closing price is well below the open or the gap is filled.
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Disclaimer: Past results are not necessarily indicative of future results. There is a high degree of risk for substantial losses in trading securities. All data and material on this website and/or ...

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