Sean Dekmar’s Top 4 Tips for Identifying Breakout StocksApril 16th 2021
By: Montana Timpson
Professional trader Sean Dekmar, CEO of TradeCaster.com and head trader of Dekmar Trade Trading Community, joined Lightspeed in a live webinar, The Top 4 Things to Look For In A Breakout Stock, showcasing key factors to watch for in identifying breakout stocks.
Characteristics of Breakout Stocks
According to Dekmar, strong breakout stocks can be identified by understanding and analyzing four main factors: float, volume, news and market condition.
Floating stock, at the core, is the number of shares available for trading of a particular stock. Floating stock is calculated by subtracting closely held shares and restricted stock from a firm’s total outstanding shares. Closely held shares are those owned by insiders, major shareholders and employees. Restricted stock refers to insider shares that cannot be traded because of a temporary restriction such as the lock-up period after an initial public offering.
“Low float” stocks tend to have higher spreads and higher volatility than a comparable larger float stock, making them prime suspects in the chase for breakouts. The lower the float, the higher the demand — and the bigger the spike tends to be. Dekmar gages a “very low float” as anywhere under US$5 million, a “solid, low float” as anywhere between US$5 million and US$15 million, a “decent float” as US$15 million to US$30 million, and “larger than is ideal” at US$30 million and up.
Volume is the number of shares or contracts traded in a security or an entire market during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume. That is, when buyers and sellers agree to make a transaction at a certain price, it is considered one transaction. If only five transactions occur in a day, the volume for the day is five.
“High trading volume can indicate high demand for a given security, because the more volume you have, the more activity you have, and the more activity you have, the more value you have,” said Dekmar. “Why do stocks move up? Because people buy them. Why do stocks move down? Because people sell them.”
Breakout stocks are often a result of breaking news. Dekmar suggests scanning breaking news sources for suggestive key words, italicized notices and strong CEO statements, in particular. In the game of breakouts, he says, knowing news as early as possible gives professional traders the best chance of best entry prices.
Market conditions are defined as general trends in the economy and are important in the search for breakout stocks, as well. Hot market conditions, according to Dekmar, are what “bring in breaking news,” and are influenced by high demand and trading volumes. Without hot market conditions, Dekmar warns, stocks are not as likely to break out, as demand and volume remain stable or stagnant.
About Sean Dekmar
Sean Dekmar is CEO of TradeCaster.com and Head Trader of DekmarTrades Trading Community. He founded DekmarTrades and TradeCaster in 2016 to defy convention, teaching novice traders how to trade the stock market in real-time. He has been a full-time professional trader for seven years and has mentored over 3,000 traders in over ten countries around the globe. His DekmarTrades chatroom hosts 1,500 members and his social media boasts upwards of 36,000 followers, to date. He was the guest speaker at the Trade Ideas Trading Conference in 2017 and was the feature guest on the American Investor Show.
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