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JEHs

Breakouts...

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I was thinking I would explore the breakout type entries. To me, they are usually the most recognizable and easy to trade set-ups, (using the word "easy" loosely, nothing is really "easy").

I posted my trade yesterday on the "reading charts in real time thread", and here on my blog:

http://mydaytradingcharts.blogspot.com/2011_06_27_archive.html

 

Here is my chart for today. I did not manage to do this right today, I had some other stuff going on that I needed to deal with. This one turned out to be more of a pull-back entry in the end, but the idea is the same; the break will most likely be in the direction of the trend...

SNAG-0009.thumb.jpg.4a1f7c61a401f2d6a2d0058171a8028a.jpg

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It doesn't look like a bad opportunity but I would want to see two-way action within that balance. It looks as if the balance occurred more due to buyers backing off after a strong move up rather than an intense battle but I couldn't say for sure as I wasn't watching. Either way I would say your stop was probably too tight. Actually, it would be fine, but if you do trade breakouts like this, you'll probably get stopped out an awful lot. So make sure when you get a winner you really ride it.

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I was thinking I would explore the breakout type entries. To me, they are usually the most recognizable and easy to trade set-ups, (using the word "easy" loosely, nothing is really "easy").

I posted my trade yesterday on the "reading charts in real time thread", and here on my blog:

My daytrading charts: Jun 27, 2011

 

Here is my chart for today. I did not manage to do this right today, I had some other stuff going on that I needed to deal with. This one turned out to be more of a pull-back entry in the end, but the idea is the same; the break will most likely be in the direction of the trend...

 

Something you might not have considered is that you are trading a breakout strategy on a stock index, a relatively choppy, mean-reverting market. Perhaps you should look at some different markets and see if your strategy is more suited to something else.

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Something you might not have considered is that you are trading a breakout strategy on a stock index, a relatively choppy, mean-reverting market. Perhaps you should look at some different markets and see if your strategy is more suited to something else.

 

good point.....the times I have traded a breakout on an equity index only to watch it mean revert are too numerous, and the chop can cause exactly the situation JEH had - failure to take the really good break.

With trading breakouts there are a couple of important issues that need to be taken into consideration with the trading plan that I find are crucial - IMHO these are particular to breakout trading and unfortunately there seems to be no middle ground.....

 

Some of these trade offs in a nutshell are...

1....if you only take pullbacks of a breakout, then you are guaranteed to get every stop, and yet might miss out on the big runners

2....if you keep your stops close, you must be prepared to do more trades and hence you will have more small losses and you must be prepared to keep going after a string of losses, otherwise if wanting to have less trades you will need bigger stops, and hence maybe less qty per trade.

3....if you dont run the good breakouts then point 2 which ever way you do it is pointless (IMHO)

4.....better suited to building a position over a longer term to catch a trend, as the point of a breakout is that it is based around a trending instrument, and therefore you have the issue of taking profits (or part profits) v letting it ride and building positions.

5....exits - do you take profits at certain levels, or let it ride and risk that your profits can disappear.

6....time frame is crucial - if you are trading off daily breaks, then a longer term strategy must be used, shorter term breaks allow more trades, but possibly more mean reversion in the trend - more opportunities to stuff it up maybe.

 

I think these are all related to the issues of trend following as breakout trades and trend following go well together, and unfortunately I believe there is no middle ground here because consistency is crucial for a lot of these issues.

eg; if you take the opinion that you take profits, you will always miss the big moves, if you let them ride, then your peak to trough PL drawdowns will be large

 

and refering back to sdomas post - this means that applying one set of rules for breakout trading can have vastly different results for different instruments.....meaning even more frustrations!

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I was thinking I would explore the breakout type entries. To me, they are usually the most recognizable and easy to trade set-ups, (using the word "easy" loosely, nothing is really "easy").

 

i trade (position) equities using breakout system based on PnF charts showing double top setup. initial price targets are easily calculated.

time frame is intermediate. if position is stopped, reenter on the following double top.

actual entry is confirmed on traditional bar chart.

been using this system successfully for several years.

attached chart shows typical setups(opportunities)

break of red lines (double top) are entry points.

 

peter.

5aa7108699b96_HANSDoubleTops.png.b7f8db1c26a2fd04d52af8a674f900aa.png

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Here I tried the first breakout on the smaller formation. Moving my stop according to plan I was stopped out at -1 tick. Then, on the larger formation breakout the move was much stronger. I am looking for the ones like this that take off and don't turn back. I don't see any reason for a looser stop. Either it goes or I don't want it.

This one I exited at the strong resistance of a previous high. I'm afraid I was just excited to have some profits and didn't want to give any back. I left a lot on the table as a result...:doh:

SNAG-0007.thumb.jpg.958e4bd4c1f4593da4a1307356e05864.jpg

SNAG-0009.thumb.jpg.4d13bc31934fccc60d65f44adaec2726.jpg

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comments if i may to inject thought into it....(my price levels are rough guesses)

 

The first trade you did enter long 2392.75, why did you not take profits at the resistance near 2395? Instead it got stopped out.

and yet the second trade you seem to enter at 2395.5 and take profits at 2397.5?

If following breakouts, then you dont want to take breaks near resistance, as they are likely to hold the first time, you want to take breaks of resistance, and you have to be clear in the levels of what constitutes resistance and support of course.

If you want to anticipate that a break will occur, then ideally doing that on a pullback from resistance the first time in a mean reverting instrument might be worth a go....very different to a failed break :)

 

Also it looks like you entered the first trade on a break out of the smaller frame, and the second on the break in the larger frame.....that seems a bit inconsistent???

 

(sorry I may be reading this incorrectly as I dont ever use tick charts, but from a first look it seems that way)

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I edited the chart from post #1 and commented on how I read that chart. Right after you got stopped out, price made two higher highs, then failed to go lower for 3 bars. That is what I would call a "Strength Up" move during a down trend. To me, that's a "Pre" Bottom signal. And what happened? Price bottomed, and it moved up. BUT, the price move up is not another up trend. It's a continuation of a longer up trend, after an extended retracement. That's why you would take long profit right after the price breaks over Resistance, and go Short. Scalp the Short trade, and wait to see what happens. What happened? Price dropped HARD and fast, that is what I would call, "Strength Down". And it's Strength down ON THE FIRST MOVE. It's critical to take into context what the overall picture is. Strength down on the first move down is confirmation of continuation down. No rule is 100% percent. That's why I don't just enter an order, and think that I know what is going to happen. I never know what's going to happen. But I can be flexible and adjust.

 

Those are my rules.

SNAG-Comment.thumb.jpg.74938d34bdbcde219626e5dee8328290.jpg

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comments if i may to inject thought into it....(my price levels are rough guesses)

 

The first trade you did enter long 2392.75, why did you not take profits at the resistance near 2395? Instead it got stopped out.

and yet the second trade you seem to enter at 2395.5 and take profits at 2397.5?

If following breakouts, then you dont want to take breaks near resistance, as they are likely to hold the first time, you want to take breaks of resistance, and you have to be clear in the levels of what constitutes resistance and support of course.

If you want to anticipate that a break will occur, then ideally doing that on a pullback from resistance the first time in a mean reverting instrument might be worth a go....very different to a failed break :)

 

Also it looks like you entered the first trade on a break out of the smaller frame, and the second on the break in the larger frame.....that seems a bit inconsistent???

 

(sorry I may be reading this incorrectly as I dont ever use tick charts, but from a first look it seems that way)

 

...lets see...

I don't know.

Yes.

Yup.

OK.

It depends, but, in general, I suppose so.

 

Thanks. I have much to learn. This is hard but I think, for the most part, I am moving forward...

:shrug:.

 

John

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I edited the chart from post #1 and commented on how I read that chart. Right after you got stopped out, price made two higher highs, then failed to go lower for 3 bars. That is what I would call a "Strength Up" move during a down trend. To me, that's a "Pre" Bottom signal. And what happened? Price bottomed, and it moved up. BUT, the price move up is not another up trend. It's a continuation of a longer up trend, after an extended retracement. That's why you would take long profit right after the price breaks over Resistance, and go Short. Scalp the Short trade, and wait to see what happens. What happened? Price dropped HARD and fast, that is what I would call, "Strength Down". And it's Strength down ON THE FIRST MOVE. It's critical to take into context what the overall picture is. Strength down on the first move down is confirmation of continuation down. No rule is 100% percent. That's why I don't just enter an order, and think that I know what is going to happen. I never know what's going to happen. But I can be flexible and adjust.

 

Those are my rules.

I think this is the stuff that confuses most of us who are trying to figure this out. I think you are trying to explain stuff that takes place on an intuitive level. I'm sure it all makes sense and probably some of it I am already aware of, but if I have someone constantly explaining stuff like this to me and try to understand it I would go nuts. There is to much for the mind to process at any given time.

 

It would be if someone was trying to explain how to throw a free throw by talking about force and trajectory, etc. There is something to be learned there probably but the only real way to learn to throw a basketball and get it in the hoop is to keep doing it. When it goes in you don't know exactly why, you just know that you are getting better at it.

 

I find I have been watching charts so long now that there are times when I just know what will probably come next. The trick for me is waiting for those times. As time goes on I'm sure I will see more and more of those areas, (many of which are probably the areas now that frustrate me because I don't know what is happening), but for now I need to go with what I can see...

 

...but I think, in short, what you are saying is, "trade what you see", which is generally good advice so I will take it as that. Thanks.

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