Just wondering how many people trade breakouts vs. breakout failures? I've been trading breakouts with a moderate degree of success. I'm up more than double this year, but on a very small portfolio (under 25K). Van Tharp talks about using breakout failures since so many people try to use breakouts. I was wondering what people thought. And by breakouts, I mean the kind that Zanger trades.
The problem with breakouts is it is very hard to predict how far it will go if it does breakout especially to the upside. For this reason I only trade breakouts to the downside. I trade Fear. I am a Bear.
skyrider, Trading breakouts is a method I have been using for years. If you think about it every trend starts with a breakout of some sort. I saw elsewhere that you subscribe to Dan Zangers newsletter. If you look on his website and really study the chart patterns he uses, learn as much as you can about them. Watch the stocks or eminis or whatever you trade and draw these patterns on your charts as they are forming you can be successful with it. It is not an easy task but no matter what method you use if you don't know all the ins and outs of it you will fail. I am no Dan Zanger but I have used this method long before anybody ever heard of Dan. He has used it very successfully as everyone knows and so can anybody that puts forth the effort. But you must remember even he says that he has tried to train people to use his method and nobody has been able to do it exactly like him. So don't try to imitate just learn to his style and your personality. Good Luck, 4re P.S. You might try reading Getting Started In Chart Patterns by Thomas Bulkowski and The Disciplened Trader by Mark Douglas...
Longer-term breakouts tend to attract more stop orders from "breakout players" because they're all aware of a "critical" price level in a market. That source of volume should generally give more follow-thru to the initial surge through the price level. That same price level should be able to withstand atleast one re-test if the market reverses. If the market loses momentum at the original breakout level, then you have the potential for a reversal that will make losers out of those hoping for rally continuation. The original breakout level becomes a good reversal entry if it gets "tested" a second, third or fourth time.
This is also what I notice. If resistance seems very obvious (everyone can see it!) then expect a breakout (wait for confirmation 1st). Usually on the 3rd of 4rth test of resistance level this happens. When it seems too obvious to be true usually "something" happens (breakout or fake breakout). At least that's how I see it. Wait for the pull back of the pullback before buying. I buy on the second bar (5 minute bars) after a new low with a stoploss right under the low providing the risk is not too high. What happened to me a lot BTW is that I bought on breakout which then turned out to be the high of a higher high. So basically I was right on the direction but wrong in timing and got stopped out. I always look for a higher low first now. regards, Ivo
Low volatility, buy breakouts. 70% or less of the 20 day average true range as candidates. Graphically, the sooner before the apex of a drawn triangle, the more reliable. High volatilty buy support.
============ Skyfox; Both. Breakouts have some patterns that tend to work; breakdowns [downtrends] do also. ES emini, usually reverses more, & quicker than stocks Like DR Tharp/books; didnt get the impression he is anti-breakout.