How I Identify Breakout Stocks Using Price-Volume Analysis
By TradeCraft | May 6, 2025
Introduction
Identifying true breakout stocks is both an art and a science. Drawing from the methods of Mark Minervini and Dan Zanger, I’ll walk you through the exact price and volume patterns I look for before entering a breakout. This guide is packed with actionable tips, real chart examples, and the nuances that separate failed breakouts from explosive winners.
1. The Foundation: What is a Breakout?
A breakout occurs when a stock moves above a well-defined resistance level on increased volume. But not all breakouts are created equal. The best breakouts occur after a period of tight price consolidation, with volume drying up before the move. This is a hallmark of institutional accumulation.
2. The Minervini Criteria: Tightness, Volatility Contraction, and Volume
- Tightness: Look for price bars that get progressively tighter, with closes near the highs.
- Volatility Contraction: Each pullback should be shallower than the last, forming a volatility contraction pattern (VCP).
- Volume Dry-Up: Volume should decrease as the base forms, then surge on the breakout day.
3. Dan Zanger’s Confirmation: Price-Volume Surge
Dan Zanger emphasizes the importance of a price surge on 2–3x average volume. The breakout should be clean, with little overhead resistance and a strong close near the high of the day. Avoid breakouts with choppy action or weak volume.
4. Red Flags: What to Avoid
- Breakouts on low or average volume
- Overhead supply from prior failed breakouts
- Wide, loose price action in the base
- Breakouts during broad market weakness
5. Real-World Example: Annotated Chart
Below is a real chart example (see image above) showing a textbook breakout. Note the tight price action, volume dry-up, and explosive move on volume. I annotate the entry, stop-loss, and target zones.
6. My Checklist Before Entering a Breakout
- Is the base tight and well-formed?
- Is there a clear resistance level?
- Has volume dried up, then surged on the breakout?
- Is the general market in an uptrend?
- Is there minimal overhead supply?
7. Conclusion
Breakout trading is about stacking the odds in your favor. By focusing on price and volume, and using the criteria above, you can dramatically improve your win rate. Study the greats, review your trades, and always manage risk. For more annotated charts and live trade examples, check out the rest of the TradeCraft blog.