Astute investors should pick breakout stocks to get excellent returns. This method involves zeroing in on stocks whose prices vary within a narrow band.

If the stock price falls below this channel, it could be the best time to sell it. However, according to this strategy, the best time to buy a stock is when it is about to break above this trading band. Such stocks offer the prospect of impressive gains.

To that end, Idaho Strategic Resources IDR, MAG Silver Corp. MAG, and Latham Group, Inc. SWIM have been selected as the breakout stocks for today.

Zeroing in on Breakout Stocks

To select the right breakout stock, one must first calculate its support and resistance levels. A support level is the lower bound for stock movements, while a resistance level refers to the maximum price it trades at within a considerable period.

In other words, the demand for a stock is at its lowest at its support level, which means that most traders are willing to sell it. At the resistance level, most traders are willing to go long on the stock, meaning they would like to add it to their portfolio. The key to identifying breakout stocks is to zero in on those on the verge of a breakout or those that have just broken above the resistance level.

Has a Genuine Breakout Occurred?

The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is genuine is another matter altogether.

For a bona fide breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the established trading channel is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price that may not seem attractive at first glance.

Screening Criteria Using Research Wizard:

? Percentage price change over four weeks between 10% and 20% (Stocks showing considerable price increases but whose gains are not excessive.)

? Current Price /52-Week High greater than or equal to 0.9 (Stocks trading 90% close to their 52-week highs.)

? Zacks Rank equal to #1 (Only Strong Buy rated stocks can get through.)

No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.