Stock Quotes in this Article: ACHN, AKS, ISIS, NEON, GRPN

WINDERMERE, Fla. (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high, or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players that can ultimately push the stock significantly higher.

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An example of a recent successful breakout trade is solar player Yingli Green Energy (YGE) which I featured in Dec. 07's “5 Breakout Stock Plays.” I mentioned in that piece that YGE was starting to bounce right off its 50-day moving average and it was quickly moving within range of triggering a near-term breakout trade. That trade was set to hit once YGE took out some near-term overhead resistance levels at $1.88 to $1.90 a share and then once it cleared more resistance at $2.18 a share.

Guess what happened? Shares of YGE triggered that exact move just three trading sessions later with massive upside volume. Had you bought the stock in anticipation of that move, you've been rewarded handsomely with shares now changing hands at $2.36 a share. The best part about this play is that YGE never broke its 50-day moving average as the stock set up to make this run. That price behavior gave traders a clear entry and stop area to focus on in case the breakout failed to come to fruition. Shares of YGE still look poised for higher prices, as the stock now moves within range of taking out its 200-day moving average of $2.47 a share.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

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With that in mind, here's a look at five stocks that are setting up to break out and trade higher from current levels.

Groupon

One name that's trending very close to triggering a major breakout trade is Groupon (GRPN), which provides a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount. This stock has been crushed by the sellers so far in 2012, with shares down by a whopping 75%.

If you take a look at the chart for Groupon, you'll notice that this stock has been uptrending very strong for the last month and change, with shares moving from a low of $2.60 to its recent high of $5.10 a share. During that uptrend, shares of GRPN have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed GRPN within range of triggering a major breakout trade.

Traders should now look for long-biased trades in GRPN once it breaks out above some key overhead resistance at $5.50 a share with high volume. Look for a sustained move or close above $5.50 a share with volume that hits near or above its three-month average action of 19,116,900 shares. If that breakout triggers soon, then GRPN will set up to re-test or possibly take out its next major overhead resistance levels at $6 to $8.05 a share. Keep in mind that any move above $6 a share will give GRPN a chance to re-fill its gap down zone from August that started near $8 a share.

Traders can look to buy GRPN off any weakness to anticipate that breakout and simply use a stop that sits right around its 50-day moving average of $4.22 a share. One could also buy off strength once GRPN clears $5.50 with volume and then simply use a stop just below $4.75 a share.

AK Steel

Another stock that's flirting with a near-term breakout trade is AK Steel (AKS), which is a producer of flat-rolled carbon, stainless and electrical steels, and tubular products. The bears have been in control of this stock in 2012, with shares down by 47%.

If you take a look at the chart for AK Steel, you'll see that this stock has been uptrending during the last month, with shares moving higher from a low of $3.42 to its recent high of $4.41 a share. During that uptrend, shares of AKS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed AKS within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in AKS once it manages to break out above its 50-day moving average of $4.69 a share with high volume. Look for a sustained move or close above $4.69 a share with volume that registers near or above its three-month average action of 9,360,030 shares. If that breakout triggers soon, then AKS will set up to re-test or possibly take out its next major overhead resistance levels at $5.77 to its 200-day at $5.82 a share. Any high-volume move above its 200-day will then put $6.73 into focus for shares of AKS.

Traders can look to buy AKS off any weakness to anticipate that breakout and simply use a stop that sits just below some near-term support at $3.85 a share. One could also buy off strength once AKS clears its 50-day at $4.69 and then simply use a stop right around $4.20 a share.

Neonode

One name that's just starting to enter breakout territory is Neonode (NEON), which develops and licenses the next generation of multisensing user interfaces and optical multi-touch solutions for consumer brands. This stock has been uptrending decent during the last three months, with shares up around 20%.

If you look at the chart for Neonode, you'll notice that this stock has been trending sideways for the last three months, with shares moving between $3.19 a share on the downside and $4.56 a share on the upside. Shares of NEON have just started to bounce right off its 50-day at $3.87 and today it's starting to recapture its 200-day at $4.42 a share. That move is quickly pushing NEON within range of triggering a major breakout trade.

Market players should now look for long-biased trades in NEON once it manages to break out above some near-term overhead resistance levels at $4.55 to $4.56 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 184,092 shares. If that breakout triggers soon, then NEON will set up to re-test or possibly take its next major overhead resistance levels at $5.59 to $6.28 a share. Any high-volume move above $6.28 will then put $7 to $7.40 into focus for shares of NEON.

Traders can look to buy NEON off any weakness to anticipate that breakout and simply use a stop that sits right around its 50-day at $3.87 a share. Traders can also buy off strength once NEON clears those breakout levels with volume and then use a stop that sits right around $4 a share.

ISIS Pharmaceuticals

Another stock that's moving within range of triggering a major breakout trade is ISIS Pharmaceuticals (ISIS), which is engaged in antisense drug discovery and development, exploiting a novel drug discovery platform it created to generate a broad pipeline of first-in-class drugs. This stock has been trending strong so far in 2012, with shares up 34%.

If you look at the chart for ISIS Pharmaceuticals, you'll see that this stock has been uptrending strong for the past month and change, with shares soaring from a low of $7.55 to its recent high of $9.97 a share. During that uptrend, shares of ISIS have been consistently making higher lows and higher highs, which is bullish technical price action. That move has now pushed ISIS within range of triggering a major breakout trade.

Traders should now look for long-biased trades in ISIS once it manages to break out above its 50-day at $9.62 a share and its 200-day at $10.69 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1,852,340 shares. If that breakout triggers soon, then ISIS will set up to re-test or possibly take out its next major overhead resistance levels at $12 to $14 a share. Keep in mind that any move above $12 a share will give ISIS a chance to re-fill its gap down zone from October that started above $14 a share.

Traders can look to buy ISIS off any weakness and simply use a stop that sits right around some key near-term support levels at $8.82 to $8.60 a share. One can also buy off strength once ISIS takes out its 50-day at $9.62 with volume and then use a stop that sits a few percentage points below that level. I would add to either position once ISIS takes out its 200-day with high volume.

Achillion Pharmaceuticals

My final idea that's trending very close to triggering a near-term breakout trade is Achillion Pharmaceuticals (ACHN), which focuses on the discovery, development and commercialization of innovative treatments for infectious diseases. This stock has been trending up modestly so far in 2012, with shares up 12%.

If you look at the chart for Achillion Pharmaceuticals, you'll notice that this stock formed a bottoming chart pattern during the last month and change at around $7.11 to $7.26 a share. Following that bottom, shares of ACHN have started to soar and move back above its 200-day moving average of $8 a share. That recent spike is quickly pushing ACHN within range of triggering a near-term breakout trade.

Traders should now look for long-biased trades in ACHN once it manages to take out some near-term overhead resistance levels at its 50-day of $8.88 a share and then once it clears more overhead resistance at $9.05 to $9.56 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average volume of 1,353,450 shares. If that breakout triggers soon, then ACHN will set up to re-test or possibly take out its next major overhead resistance levels at $10 to $11.36 a share. Any high-volume move above $11.36 a share will then put $12 to $12.95 a share into focus for ACHN.

One could look to buy ACHN off any weakness to anticipate that breakout and then simply use a stop that sits near its 200-day at $8 a share. Traders can also just buy off strength once ACHN takes out those breakout levels with volume and then simply use a stop that sits a few percentage points below its 50-day at $8.88 a share.

To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.