Breakout Trade Strategies on ES

[bathrobe 10]

Hello,

 

I have started this thread to discuss different strategies on trading breakouts, I usually miss them because I am waiting for a pullback, which do not seem to happen as often lately in the ES. Hoping any of you willing to post your strategies regarding breakouts would post.

 

Today was a perfect example May 26 09 attached is a chart.

[Soultrader 12]

Interesting thread bathrobe, I rarely play breakouts either.... in fact I fade breakout failures, which is often my favorite play.

 

Only time I feel comfortable placing a market order on a breakout is if the volume 1 bar back is higher than the average of the past few bars. Or if price had been lingering around the top/bottom bracket without falling back towards the other side of its range.

[Tams 20]

Hello,

I have started this thread to discuss different strategies on trading breakouts, I usually miss them because I am waiting for a pullback, which do not seem to happen as often lately in the ES. Hoping any of you willing to post your strategies regarding breakouts would post.

Today was a perfect example May 26 09 attached is a chart.

 

 

put on a moving average.

 

if the low is trading above the MA... think LONG.

 

if the high is trading below the MA... think SHORT.

 

if the price is straddling the MA... THINK.

 

 

 

 

pay attention to the volume.

 

volume is the gas peddle in a racing car.

price cannot get anywhere without broad participation.

[bathrobe 10]

Hopefully, to inspire some of you to share more, something I am currently watching is VSA at S/R levels, in the ES you must jump in quite quickly as VSA does not give all of the confirmations in ES as in stocks. I use my own S/R levels and not the ones in the TradeGuider software just to be clear.

[ckait 10]

Lately breakouts are rare and short lived on ES, last two day's excluded, they were a staple for the last year or so but trading the range has been much better lately. get some MP or volume profile experience and your off to the races.

[bathrobe 10]

Lately breakouts are rare and short lived on ES, last two day's excluded, they were a staple for the last year or so but trading the range has been much better lately. get some MP or volume profile experience and your off to the races.

 

I am currently reading Mind Over Markets. But need to switch software to have reliable MP charting. Currently looking into Investor R/T which seems to have an excellent Profile add-on.

[Bear Mtn. 10]

Thanks for starting the thread Bathrobe as breakouts are, I think, of interest to most people at some level - whether something you experimented with in your early days or still work with as a trade setup currently.

 

Personally I have experimented with a lot of strategies to try and catch the elusive breakout (indices and currencies) but find consistency to be difficult. I have however found that I am much better suited to trading false ones and fading breakouts. Getting a good signal on a failing breakout (and hence good reversal setup) is twice as reliable as a signal for a potential runner IMO, anyone else got thoughts on this?

[thalestrader 14]

Hi Bathrobe,

 

Here is what I'm looking at on the ES right now (see chart). If I were trading ES today, (and I am not trading at all today) I would have a sell stop at 886 and a stop loss at 890.50. Those figures may change depending upon what develops here. But at this momnet (10:18 am EDT) that's how I'd be playing the ES. I would prefer price to tag that 890.50 prior to making a new low at 886 (and better still exceeding 890.50 by a bit and quickly reversing down.

 

I have to run, and won't be back until the afternoon.

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Bathrobe,

 

Here is what I'm looking at on the ES right now (see chart). If I were trading ES today, (and I am not trading at all today) I would have a sell stop at 886 and a stop loss at 890.50. Those figures may change depending upon what develops here. But at this momnet (10:18 am EDT) that's how I'd be playing the ES. I would prefer price to tag that 890.50 prior to making a new low at 886 (and better still exceeding 890.50 by a bit and quickly reversing down.

 

I have to run, and won't be back until the afternoon.

 

Best Wishes,

 

Thales

 

Well, as I said, "those figures may change depending upon what develops here." And what developed was little "double bottom" with what some may call a "123" - market made a low at 886.25, rallied to 890.25, and then price again tried to go below 886.25 but failed to do so. The sell stop at 886 would never have been triggered, and instead, this price action created an opportunity for a buy stop at 890.50 (or perhaps 890.75, as 890.50 was the prior day's low), with a stop loss at 886.

 

Either way, you would have been on board for a potential 20 points - though there were natural stops along the way that could have stopped you out with as few as 5 points or so.

 

Best Wishes,

 

Thales

Edited May 28, 2009 by thalestrader
spelling

[bathrobe 10]

Thanks Thales,

 

Great analysis/strategy for b/o

[brownsfan019 17]

BR - focusing on breakouts (when to go with the move and when to fade it) can be extremely lucrative if you can find the right method. Personally, I will trade breakouts (with or against) if my other parameters are met.

 

As I see it, focusing on breakouts gives you a few options:

 

1) You can focus on when to go w/ the move and only w/ the move.

2) You can focus on when to fade it and only fade it.

3) You can try to do both.

I know that part seems straight forward, but I think sometimes people either try to do too much or not enough. It really depends on the risk you are willing to take and how much research you want to put into this.

 

Initially, I think it would be easier to focus on 1 method - fading or riding - breakouts and become really, really good at those. Once you figure out how to ride or fade it, then you might have also figured out the other way as well.

 

As you know there's so much that goes into building a trading strategy that you are really going to have to dig deep to make this work. For example, if you are looking to profit 1 ES pt, then I would think you could do either (fade or ride it). If you are looking for a monster move, then you'll need to work it hard.

 

Here's some ideas to consider:

 

1) Candle patterns can lend some aid here. Keep in mind that the lower the timeframe, the lower the reliability but I would at least be aware of what you are seeing.

2) You'll need some other filter - volume, indicators, S/R, oscillators, bands, etc. etc. Something else will need to help confirm the breakout or fade trade.

One disadvantage to only watching 1 market is that if you are playing breakouts, it might not be breaking out. So if you do find something that has your attention, I would take a look at bonds, currencies and oil to see how the idea works there as well. In other words, if the ES is between your breakout areas, could you be profiting elsewhere? That is one advantage guys like Thales have over us futures traders is that his universe is so much larger. If you were working a breakout system on stocks, you would just need to set your screener and then react.

 

One observation on your ES chart, that I also posted here, is that we had an immediate gap fill today. Maybe that's something...

[Robert Joyce 10]

Here is my view of the same action today on the ES. I was trading the YM and took this signal for a nice little trade as both my limits were hit. I offer it here because it is often a strong signal and can have nice moves usually 3 to 5 but this one went for 8.

[Robert Joyce 10]

lol lol Sorry I forgot one arrow..... and the price to buy would be 898.

[olive 10]

Hi Everybody,

 

I keep my eye on the $ADD, a symbol in TS for the difference between Advancers and declining stocks on the NYSE. When this indicator bolts for 2000 (2000 advancing stocks) or above within the first 30 minutes and stays above 2000, it works for me to buy at the first pullback of some description and hold until the end of the day. Lately buy days have been better than sell days. Like wise when the $ADD is not as strong, its a good day not to let trades run as long.

 

Olive

[thalestrader 14]

Hi Folks,

 

Price action around trendlines and prior highs/lows often offer decent trading

opportunities.

 

Best Wishes,

 

Thales

[nab999 10]

Hi,

 

Of all the many many indicators / oscillators Etc Etc out there, which one do you think would provide the best supporting / confirming indication for a breakout

[Tams 20]

Hi,

 

Of all the many many indicators / oscillators Etc Etc out there, which one do you think would provide the best supporting / confirming indication for a breakout

 

 

volume...

without broad participation, there will be no follow through

[jonbig04 10]

Hey guys, I hope its ok if I join in. I trade breakouts on ES as well. I'm looking for pretty particular circumstance so I don't do it very often, but I find when the setup does occur the resulting trade can be a great ride. Many times I have thought about taking these breakout setups only and using different instruments as they don't happen very often (or I don't see them very often). But I decided against that route and take many other setups all on ES.

 

I choose to use patterns to quantify the price action around the potential breakout. It's either the confirmation or the failure of a pattern. I'm sure you could just call it a range breakout, sometimes a major trend line breakout, or a thousand other things. I don't think the name is important, but the PA behind it. Patterns just work well for my brain I guess.

 

As was mentioned earlier, I think volume is key. To me, this is a momentum trade. There should be little doubt when it is happening. Volume should be expanding and the weaker side getting pummeled and price moving quickly. The tricky part is that there is always a volume expansion at major support and resistance so it's really best to wait for some failure. Otherwise you will do what I did the other day and short the low of day or buy the high of day haha.

 

Not that it matters very much. In my experience the R/R with these breakout trades is 1:7 or better. You can afford to be wrong about it here and there. I typically enter at market. There is a very real chance that any other entry would leave you without fill and missing the move. Your stop will likely be in a crappy spot, but this is a momentum trade and that shouldn't matter that much.

 

Here are a few example of what I do that I pulled from my journal. I explain more of what I'm doing in that thread, but I think for now it's pretty self explanatory.

 

 

Here's a breakout from the middle of July. Notice the double top at 884 and what happens when it fails.

 

 

Same story here, double top failure break out. A week after this breakout, ES was sitting at 1,000.

 

 

I put this one up because it shows what I call a confirmation break out. Price broke out when the double top confirmed. There was a spike that confirmed the double top before hand, but if I remember correctly I dismissed it as just a stop run and ignored it (the fact that these are all double tops is coincidence). As you can see, I actually went long at support and reversed to catch the breakout.

 

 

 

So there's a few example of how I play breakouts, I hope to get better with time. I thought I would post a chart of ES today as I may have break out play coming up! In fact I sold the low of day trying to catch a break out a few days ago. Price closed near support, I'll be on the lookout it tries to break down below it (or above the R).

 

[brownsfan019 17]

volume...

without broad participation, there will be no follow through

 

And can you share a way to use this knowledge tams?

[Tams 20]

And can you share a way to use this knowledge tams?

 

 

Yes sure...

this is a good place to start:

http://www.traderslaboratory.com/forums/f34/price-volume-relationship-6320.html

 

 

[brownsfan019 17]

That's what I thought. More lines all over the place ala Hershey-style.

 

No thanks, I would actually like something that works in real-time.

 

 

PS

Do you use that stuff to make money trading in real-time with real money? Has anyone ever been able to do that and prove it? Anyone?

[jonbig04 10]

The lines are all greek to me. I just watch for volume expanding while price is moving rapidly. I like to keep it simple.

[Eric Johnson 10]

Hi I am going to offer a few ideas for people to work with, rather than explaining the complex system I use to evaluate breakout direction and timing. I guess the obvious is to watch market opens and closes around the world for timing and powerful follow through (along with news announcements).

I like to use a 5 minute chart and 1 hour chart. I set up on both 14ema, 50ema, and 250ema. I watch for convergences on the 1 hour chart, they usually lead to major trend breakouts. If a trend is "fresh" and channels sideways, I check where price is on the hourly in relationship to the EMA's . If it is above all then expect long. Then wait for the same on the 5 minute. Most wait for the pullback after the channel break to buy.

If it is later in a tired trend I will wait for the price to fall below the 50 and 14 on the 5 minute. Then if there has been a past price exhaustion, I look for the momentum to push down to the 200ma.

Anyhow enough generalities for a few lines. I actually use this system to forecast how far a breakout will go, and fade it (using ma envelopes) but I have good results predicting the breakout direction and timing. For me the market reverses and chops far more than it breaks out so I am more of a reversal trader.

[sevensa 10]

Hi I am going to offer a few ideas for people to work with, rather than explaining the complex system I use to evaluate breakout direction and timing. I guess the obvious is to watch market opens and closes around the world for timing and powerful follow through (along with news announcements).

I like to use a 5 minute chart and 1 hour chart. I set up on both 14ema, 50ema, and 250ema. I watch for convergences on the 1 hour chart, they usually lead to major trend breakouts. If a trend is "fresh" and channels sideways, I check where price is on the hourly in relationship to the EMA's . If it is above all then expect long. Then wait for the same on the 5 minute. Most wait for the pullback after the channel break to buy.

If it is later in a tired trend I will wait for the price to fall below the 50 and 14 on the 5 minute. Then if there has been a past price exhaustion, I look for the momentum to push down to the 200ma.

Anyhow enough generalities for a few lines. I actually use this system to forecast how far a breakout will go, and fade it (using ma envelopes) but I have good results predicting the breakout direction and timing. For me the market reverses and chops far more than it breaks out so I am more of a reversal trader.

 

What is a fresh trend that channels sideways? How can a trend go sideways? A chart will be helpful to show what you are talking about here.

[Eric Johnson 10]

I will try to be a bit clearer, I like this forum because people care about the details. What I meant was when a fresh trend,levels off and goes into a sideways channel. Take a look at the 5 minute chart and the yellow zone gives you a visual. I regret that I do not have the backfill for the ES now, but the Euro/USD does trade very close to it often times, so these are EUR/USD charts.

So to define fresh and so on I would need to put on the envelopes and other accessories. But for a simple definition, lets just say a fresh trend has recently come out of a consolidation pattern, It is not stretched or extended yet.

I look to the hourly to see where price action is in relationship to the MA's (yellow box on hourly) I see it is above mostly above the MA's. I am leaning for a break long. Then I wait for price to get above MA's on the 5 minutes. The break came at the Tokoyo open (the times on Meta trader are set strangely). The S+P usually will react to these forex moves. Actually traders like John Carter often use the forex to lead the indices for trading the ES (I have also)

A few other things to note are on the 1 hour, see the 14 (blue) and 50 (pink) crossover preceding the (yellow box area) long run up in price. Also the 1 hour blue box was late in the down trend, with an exhaustion bar, lead to a channel break up. On the 5 minute it is a bit weak to see, but on the price peak there was a channel with a mild exhaustion, late in the trend, that broke down as it crossed below the MA's.

Anyhow no magic formula, just things to see if the are helpful for you.