People write books on that subject. Hopefully this post will not end up as long as one. Two of the things that I look at are volume and fundamentals. With regard to fundementals. Lets say that you are trading the ES. Later in the day the FOMC is scheduled to announce a rate decision. Due to low liguity I would assume all breakouts to be false based on fundamentals until after the announcement. Then I look to tick volume. Low volume moves often fail. If I like the breakout I drop to a lower timeframe and watch price action for micro support levels and a reversal formation before entering. Keep in mind that a failed breakout often means a reversion to the mean trading range and a profit opportunity in and of itself.
You don't trade fundamentals. You trade news. This is quite different. This is price action. In my case, I don't care about news implication but care about how markets react to the news. CM
For me, sometimes I'm wrong and the false breakouts simply become a loss. The trick is identifying trades where reward to risk ratio is really favorable so that overall my winners are more significant than my losers. This is the filtering part that I speak of earlier. For me, money management (which really comes down to position sizing and not putting myself in a position where if I'm wrong, I end up with losses that wipe out months of profit) is essential. However, I think a trader needs more than just money management. If only random entries and random exits are taken, I don't see how money management can turn a losing strategy into a profitable strategy. It's still necessary to find some inefficiency in the market and exploit that. Actually, honestly, sometimes it involves finding some inefficiency in the market and making that inefficiency worse.
Two years: the first I spent losing big money, the second paper trading, now since March 16 I have been consistently profitable (about 60% gain on my starting capital) but I have done that while working, leaving work to live as a trader, moving to another country. I am a discretionary trader and trade one stock and a couple currency pairs. This year, as I will have much less distractions, I expect to make anything between 100% and 200% but wouldn't be too surprised if I made up to 500%.
Consider this if you will. Price has been trading within a range. Lets just take a 30 tick range. Price tries to breakout to the long side but fails. It is reasonable to expect price to retrace back to at least the center of the chanel providing a profit opportunity. But if you are wrong a stop can be placed just outside the upper level and you are out of the trade with minimum loss. False breakouts are not always bad. They can make you money
It took me 14 years. Nowadays, I have several edges, and I give them away - free to all. For example, buy Home Depot about 10 minutes before the close every day but Tuesday. Sell it the following trading day around 9:45. Over the past 5 years, this edge has returned about 20% per year every single year. This includes all commissions and charges using TradeStation. You're welcome.
I wasn't following the market when stocks traded on 0.125 cent increments, but just curious, did support and resistance levels / breakout trading strategies work better or worse back then?