Get in at the BREAKOUT OR wait for a PULLBACK?

Discussion in 'Trading' started by daniel_tysen, Jan 27, 2011.

Get in at Breakout or Pullback?

  1. Breakout man! Otherwise I might miss the trade!

    5 vote(s)
    22.7%
  2. Wait for the pullback! I hate false breakouts man!

    13 vote(s)
    59.1%
  3. None of em, I don't give a damn about breakouts and pullbacks!

    4 vote(s)
    18.2%
  1. So guys...what do you think is better and why? How do you do it? Get in at breakouts or do you wait for pullbacks?

    Should be an interesting discussion!
     
  2. So guys...big advantage of trading breakouts:

    - Don't miss a trade if there's no pullback

    And the other side of it:

    - Might get into "false breakout" quite often...since you don't know before the fact.
     
  3. I like them both...different types of breakouts and different types of pullbacks. However, I don't like the type of breakouts that lack volatility and I don't like the types of pullbacks that has too much volatility.

    Mark
     
  4. Tsing Tao

    Tsing Tao

    youre assuming youre going to get a pullback. in this market, they are rare.
     
  5. This the million dollar question IMO - if you can filter when the breaks are real vs. fakeouts, you can make a lot of $ quickly.

    It's just developing that filter thing.

    :D
     
  6. jjf

    jjf


    If you don't have a pullback then what are you going to breakout from.
    Even 1 tick is a pullback.

    The real question is "what constitutes a meaningful pullback" within the current trend.
     
  7. If you wait for a pullback then you will miss every trade that does not pull back to your entry point. If you enter every breakout, you will get stopped out of every false breakout. That's the unavoidable trade-off. Which one to choose depends on the odds of either scenario happening - this is not something that can be calculated with precision, although backtesting, and good judgement, will help.

    You should assess the chances of the breakout being genuine vs a false breakout, and make sure you have a contingency plan for what if you are wrong. I.e. if you see that sentiment is bullish, there has been a large runup already, and Cramer just recommended the stock on CNBC, the chance of the breakout being false are quite high. But you need to plan for what if in fact it is a genuine breakout, and the stock is about to go on a 50% move in the next 2 months - sitting there waiting for a 2% pullback is not acceptable in that case, so you must have a point at which you change your mind and just get in to the move, even if at a higher price.

    As usual in trading, there is no 'pat' answer or trading rule that works in all situations. Ultimately you must use logical thinking and rational analysis to answer these questions for yourself. There is no substitute for a detailed analysis of the specific market situation you are trading, including considering as many potential scenarios as you can, and thinking deeply about the best way to trade each scenario. If it were as simple as applying one basic rule, we would all be rich.