Breakout Confirmation

Discussion in 'Technical Analysis' started by sukhen, Dec 2, 2003.

  1. sukhen

    sukhen

    Many times, I got trapped by false breakout. Is there any way to confirm?
     
  2. dbphoenix

    dbphoenix

    If it's happening "many times", then you're probably making the wrong entry. Post a few chart examples along with the rules you're following for trading the breakouts.
     
  3. ChrisRT

    ChrisRT

    Certainly not the only way but there is two instances that I use for myself called "volume at resistance" and "volume into resistance".

    Most false breakouts tend to occur when the buy side volume takes a stock into a resistance level from a lower level, then breaks it by a few ticks, but the buy side volume was exhausted in getting it to that level, and the crowd isn't enough to sustain the continuation.

    I prefer "volume at resistance" which exhibits the battle at resistance between buyers and sellers, that when overcome, we see support from bigger money that keeps the price at highs, we see short covering from those that were shorting resistance, and then we also see crowd buyers that add to the buy side movement.

    This tends to keep the momentum in motion. Obviously it's not 100%, but this will help to weed out a few of your false breakouts in the future.

    Chris
     
  4. gms

    gms

    ChrisRT, How is the difference between the two noticed, and how is it applied?
     
  5. ChrisRT

    ChrisRT

    How it is noticed for me is one of two ways in progression. Simple chart review and then watching the TS as the base forms near that resistance level.

    My application is a function of aggression and my bias for the trade. Simplistically...if stock is in uptrend and volume "at highs" happens, buy before the break and look for the crowd to take it higher..partialling out along the way, stop at low of range.

    Flip it for the downtrend.

    If stock spikes into resistance and breaks, fade the break and look for the trade to move back into the range, partialling out along the way, stop at the most recent high made. Flip it for the spike into support.

    Chris
     
  6. Sukhen, during the day of the breakout watch where the close is, if it is above the breakout then it has been confirmed and has a high probability of going higher. A perfect example of this is AV, which broke out yesterday, I picked some up early @13.70. Look at this chart:

    http://stockcharts.com/def/servlet/SC.web?c=av,uu[w,a]daclyyay[dc][pb21!b50!f][vc60][iut!Up14,3,3!Ub21]&pref=G

    note how the close yesterday of 14.08 was above the recent high of 14.07 in mid October - AV brokeout on decent volume and hit a high of 14.35 and then retraced but closed above recent high - that is confirmation. I have a target slightly above 15 we'll see how this trade turns out. Hope this helps. :)
     
  7. mktman

    mktman

    TIWI from today would better a real good one to look at.
    Read what Chris said again in both posts then look at the price volume action.

    mktman
     
  8. I am just preparing a tips page. This is one of the tip (it's for my model so need to be adapted for others):
    break confirmation rules : see YELLOW POST IT below (illustrated for this end of day's session as fresh example)

    <IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=381589>
     
  9. anyone that understands this please explain it to me :confused:
     
  10. I said that it is tips for my SPECIFIC model (I remind that it is calculated 24h in advance so before even globex opening) :D.

    Now the rules are GENERAL and so can be included for other models or methods :

    "Rules for confirmation of break:
    - At least 2 points below the theorical support or above the theorical resistance
    - must be confirmed by next 1min bar
    - the close must be below support or above resistance
    - the high must also be below support or above resistance"

     
    #10     Dec 2, 2003