I wanted to start this thread to ask what types of techniques you guys are using to pickup on failed breakouts before they happen. I'm aware of some... like using stochastic divergences or, well divergences in general and obviously price action, but nothing that seems to be generally consistent. I trade the ES, hence onelot , so if you want to relate it to the minis please go right ahead. Thanks and happy turkey day.
if you're trying to trade against the trend of the breakout which is going to fail, you can try entering on a tight trailing stop.
onelot, I really have to apologize first for asking this. Maybe too much pumpkin pie yesterday. But how do you know something has failed before it does? Please, I am not being facetious. I use divergence as a main tool so I am with you there. I am just a bit lost on the main question. Sorry man.
One lot I think I understand what you are saying. I play a lot of breakout failures and there are a few things that can lead you in the right direction. I trade the NQ so there may be some subtle differences to the ES but let me tell you a couple things I look at. 1. Timeframes, look for breakouts in one timeframe that occur into price or ma resistance in other timeframes. Meaning a breakout that you see on a 5min chart that occurs into the 60min20ma may have a higher likelihood of failure. 2. Width of breakout range. Look at width that breakouts that succeed have and then compare them to the ranges that the breakouts that fail have and see if there is a correlation. 3. Volume on the breakout. Breakouts on weak volume or at soft times of the day are often the best to fade. Anyway these are some things I look for in advance of a breakout to see if I wish to play it or go for the failure. AllenZ
inandlong. you don't know, it's just an observation that many fail. On es where every trader has his own time frame, you could say any candle which doesn't take out the previous candle, or better yet takes it out by only 1 or 2 ticks is a failed breakout. Failed and successful are surprisingly balanced. Say, for every 10, 8 will fail giving you 16 pts if you trade them, and 2 will succeed giving you 16 pts if you trade them.
right AllenZ, a guy could turn it into an artform, just trading breakouts or fading them. It is just a way of looking at the market. Some days are horizontal, some are channelling and some are very envelope days. You can enter on stops or take the other approach and enter at the extremes on a limit. I like it because there is no known system to me that won't quickly be found out and punished.
for instance, in a classic up move with higher lows and higher highs, in a sense is just a repeated series of failed breakouts. It's just the base from which every breakout fails is steadily progressing upward.
Thanks profitseer. I appreciate it. I think I was snagged by the phrase "pickup on failed breakouts before they happen". From your reply and AllenZ's also, I take it more to mean what we all look for, clues that a breakout stands a good chance of failing. Thanks for the help guys. With that in mind divergence is a great way to go. And Allen's thoughts on volume are classic pattern breakout requirements. I too look at the longer time frames to see if the price is running in to something significant there, like the 20 ma as suggested. One thing failed breakouts do for me is reveal what average or time frame or indicator is being widely followed on that vehicle. Does the price blow thru the 5 min 20 but screech to a halt at the 15 min 200? Or when price retraced and then resumed was this a 50% fib retracement?
Hey guys thanks for participating i had a little too much pumpkin pie myself yesterday, well actually a little too much of everything... so i wasn't able to express myself as clearly as i wanted to. i tried to steer away from the word "know" because I didn't want it to sound so definitive so I chose the word "pickup", but i think allen had the best word which was "clue"... Anyway, to comment on your comments... I have a difficult time using volume, because everytime you see a breakout there seems to be inceased volume and sometimes you see a breakout continue on volume that starts strong but then dies off and sometimes you don't. The problem with volume is that you're only given the exact quantity and not the rate, the rate you kind of have to perceive but I haven't found any indicators that would quantify it. I think that would be helpful. Like if you had a little volume speedometer on the corner of your screen that went from 1-100 so you could see the speed at which those buyers/sellers are coming in. As far as moving averages go, I'll have to pay attention more to other time frames, but what i've found is that on the same time frame the upper moving averages (50,200) aren't always consistent. Sometimes they hit it like a wall and then fail, and then other times just slam right through it. I agree though, that the smaller averages help tremendously. As far as divergence. I've noticed a lot of correlation between the eminis. Like they don't want to do anything that the other brother isn't doing. I've seen a lot of failed ES breakouts when the NQ says "dude your stupid, i'm not gonna do that, i'm gonna stay here." Helps me to get through the day when I give everything personalities. Anyway, I'm just starting to look at the SPX big brother as well to see what I can see. onelot
About the "family relationship" I am seeing the same thing in the eurostoxx/dax relationship. I just started trading them, so i don't know if this is a correct observation or not. Anybody more experienced in this pair willing to share his/her experiences? rgds ps. you know what, I am going to make it into a separate discussion..