What you can do ? Trade discretionary. Then you could wait for breakout confirmation on the other side once you are short. Usually there is large percentage a reversal happening after breakout, but it is difficult to code it. Since any breakout and reversal can be different and also the time it needs for the whole development. That is why you can only watch your system, but you need to trade everything discretionary with your common sense, which you get sharpened over time practising it. There is no short cut here.
I have tried with a 10 EMA but all longs were > 10EM and all shorts were < 10EMA. Tried with a 20EMA and it indeed filtered some bad signals and improved a bit the overall statistics. Tried loosening the definition of Support and Resistance, By adding an ATR(10) to the break of previous levels. Which means it's less choppy overall ... Less supports and resistances, But more meaningful ones. And that's what is working best currently. I am going to try without loosening, But buy exiting first then entering on the next signal. But I might miss a nice signal if I exit on it and don't take it.
Hindsight analysis here. 1-Long after a full bar closes above the orange line without touching the line. 2-Close trade when a bar closes below the orange. 3-Short after a full bar closes below the purple line without touching the line. 4-Close trade when a bar closes above the violet line. 5-NO position if price is between or touching the orange or purple. Chart 1: 3 shorts = 2 small losses and one BE 2 longs = 1 small win and one large win Total = decent profit
Yes, I tried buying when low > resistance and sell when high < support. It improves the overall performance of the system. You're closing the trade when it flips direction Instead of waiting for it to break a level. Well done ! I think that's what you've done You've turned a 1.1ProfitFactor system into a 1.4ProfitFactor system. But if you remove the early exits ... the Profit Factor is 2 But there is not even 100 trades so I don't know.
That's on the 1min I have highlighted 4 false reversal. To solve most false breakout ... From what I've seen (little) Waiting for the low > resistance and high < support seems to be the "best" filter. I've tried it on 3 different, but similar, PA BreakOut Systems, It does improve the overall performance,
Now there is another thing I could do ... I'll be shaken out from my long at E (Short) then D (Long). I need to take into account the larger swings. That stuff happens to me all the time. Everyone knows it but while trading I see the forest for the tree. This is what's happening in the chart above. We break C to print E then the trend resumes. But I don't think it would improve the system much. At worst it's only a pullback and I lose (hopefully small), At best it's a little more or even a reversal and I make money.
It's not judicious to make it easier for the market to trigger a signal. The market has to prove itself and we need to make it harder, not easier
I'm just surprised you don't have VWAP or implied vol as a check against your reads. What are you using as like "decision support" or whatever its called.