You must have read the term “Multi bagger” number of times in the past, which is most commonly associated with Fundamental Analysis. In fact we have one of our blog posts on How to build a Portfolio with multibagger stocks, under fundamental analysis category.
However, in this blog, we will learn about multi bagger stocks, the technical analysis way, by using simple charts. Also we have added the actual charts of more than 10 companies of the long term breakout in the later part of the article.
|Table of Contents|
|What is a Breakout?|
|Long term Breakout Strategy|
|Examples of successful long term breakouts|
|Examples of failed long term breakout|
|Examples of Probable long term breakouts|
Now before we begin, let us know what long term breakouts means:
In simple terms, breakout trading is often used by active investors to make an entry within a trend’s initial stages.
Often this breakout is accompanied with:
- Volatility expansion,
- Major price moves and also offer
- Very limited downside risk if properly managed.
Let’s understand breakout in little more detail and also how can you identify breakout candidates.
What is a Breakout?
A breakout is a price movement of a stock outside a defined level of support or resistance, which is accompanied by increased volume and high level of volatility.
Position taken by Long term Breakout traders
- Long position when the price breaks a prior resistance
- Short position when the stock breaks the support level.
Special Feature of breakout
It is seen that the stock takes a sharp upward move post breakout.
The reason breakout is a good trading strategy since it is accompanied with major price swings and starting point of a major trend.
There can number of ways of breakout like triangle breakout, flag breakout, megaphone breakout etc taking place in various timeframe but this blog will mainly focus on long term monthly breakout.
Long term Breakout Strategy
Let us understand the breakout strategy here:
Criteria 1: Time period
Look for stocks which are probable breakout candidates of about 5, 7, 10 years or even higher period in the monthly chart. Along with the breakout, the Relative Strength Index (RSI) of the stock should also enter or already trading in the overbought area.
Criteria 2: Volume
Volume is another important parameter to look for which should be gradually increasing as the stock approaches breakout. The confirmation is further validated if the stock breaks the previous long term resistance with a gap up which suggests increased demand from the bulls.
Now let us look at the examples :
- Successful long term breakouts
- Failed long term breakout
- Probable long term breakout
Learn How to make profit out of failed breakouts in just 2 hours by Market Experts
Examples of successful long term breakouts
The common criteria in all the below examples are long term breakout on increased volume and RSI entering or already in overbought zone.
1. Repro India
The above is an example of Repro India which witnessed breakout after 9 years in the month of Feb, 2015 and in a span of 2.5 years; the stock gave more than 1.75x returns.
Venky’s too witnessed a sharp movement post breakout after 6.5 years and generated more than 6x return in a span of mere 15 months.
3. Mangalam Organics
Mangalam Organics is another stellar performer which turned out to be a ten bagger in almost 2 years time post breakout in February 2017 after 6.5 years.
4. Sundaram Clayton
Sundaram Clayton gave a staggering 10x return in about 2 years time post breakout from long term resistance after 6.5 years.
5. Balmer Lawrie
Balmer Lawrie too witnessed breakout in the month of November 2004 and gave about 4x return in mere 15 months time.
6. Shivalik Bimetal Controls
Shivalik Bimetals witnessed breakout in the month of Nov 2016 after 10 years and gave about 6x return in less than 1.5 years timeframe.
7. Lumax Ind
Lumax Industries too witnessed breakout after almost 10 years in the month of June 2016 and gave about 4x return in less than 2 years time.
8. HEG ltd
HEG ltd witnessed breakout after almost 10 years on strong volume and gave a stellar 7x return in mere 14 months time.
9. Graphite India
Graphite India witnessed breakout after 7 long years of consolidation and the breakout took place in the month of June 2017 on strong volume. The stock turned out to be 10 bagger in almost a year’s time.
10. Rain Industries
Rain Industries too witnessed breakout in the month of January 2017 after consolidating for almost 8 years. This stock turned out to be another 10 bagger in a year’s time post breakout from the long term resistance area which was on a strong volume.
11. Philip Carbon
Philip Carbon was another stock which gave about 6x return post breakout in June 2016 which was accompanied with strong volume.
Examples of failed long term breakout
GVK Power too attempted breakout after 6 years of consolidation but if you closely analyse the chart, you will find that the stock failed to close above the long term breakouts and made a bearish shooting star candle and witnessed a sharp selloff post that. Another important thing here at the time of breakout was below average volume.
Examples of Probable long term breakouts
- Kennametal India (Recent)
A very recent example of long term breakout is Kennametal India which is on the verge of breakout after 7 years of consolidation and RSI too has entered the overbought zone. A small concern at the moment is volume participation and if the stock is able to sustain above long term resistance along with more than average volume, then this can a stock to keep on radar.
- Praj Industries
Praj Industries had recently witnessed breakout on a strong volume at 120 after almost 10 years and presently the stock consolidating above the breakout area. The stock may be on your radar for the coming months.
- NIIT ltd
NIIT ltd is another stock to keep on radar as it trading near its long term breakout area. The first level of breakout is at 125 but the imp long term breakout is at 170 post which there may be a possibility of strong movement in the stock.
The first step towards becoming a long term breakout trader is to identify probable breakout candidates, keep them on radar and put an alert as soon the stock price is flirting with the long term breakout area.
Another important thing to monitor here is RSI and volume participation for further confirmation.
Moreover, you should also wait for monthly close during the time of breakout so as to avoid false breakouts as discussed in the above example.
Breakout trading is a game of volatility which is likely to generate emotions since the prices are expected to move quickly which was stuck in a range for such a long period of time.
Breakouts in itself is overall trading system and if dedicatedly followed with sound risk management, it is expected to turn out to a very profitable setup in the long run.