Why Should You Trade Shares That Are Making New Highs?
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Many inexperienced traders and investors can’t see any logic in investing in companies that are making new highs. However these people are potentially missing out on some excellent trading opportunities. Let me explain why.
The fact is that there is nearly always a fundamental reason why the share prices of specific companies are making new highs. It may be as a result of the wider stock market making new highs, or it may be specific to the actual company.
If it’s related to the company then it’s obviously due to some kind of good news. Whatever the reason it’s clearly a sign of a successful company so at the very least it will alert you to some companies that are performing well at the moment.
However on a technical basis you will notice that many of these breakouts last several days, weeks or even months. So you can profit from these breakouts whether you are a long-term investor or a short-term trader.
The fact is that many fund managers, hedge funds and private investors are all keeping on eye on stocks that are making new highs. Therefore as soon as they spot a decent company whose shares are making new highs, many of them will start buying or trading their shares so they can ride this breakout. As a result of this you obviously get a lot of momentum behind this breakout and therefore the price just keeps on going higher.
Of course not every breakout is successful because some breakouts run out of momentum very quickly, but a lot of breakouts will result in big price moves to the upside.
This is true of stocks that are making new lows as well. Very often these downward breakouts can be a sign that the company is in trouble, and therefore about to head a lot lower. These downward breakouts aren’t quite as popular because they are only beneficial to short-term traders who use spread bets or options, for example, but they can still generate some excellent trading opportunities.
Anyway the point is that you really should keep an eye out for these lists of stocks that are making new highs (or lows). There are some big profits to be made if you jump on board straight after the initial breakout takes place. You need to be selective about which companies you trade or invest in but if you keep your losses small and let your winning trades run for as long as possible, ie until the breakout starts to run out of momentum, then you should make some decent returns.
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