How to become the hunter

Discussion in 'Technical Analysis' started by paperboy, Sep 21, 2006.

  1. Anyone is trying to figure out where the stop thresholds are? Fear moves the market fast.

    Failed breakouts for example.
    Often a failed breakout leads to a larger move down.

    How can you learn to know this before it happens? I know it´s about probabilities. How do you get to be the smart money there and be able to quantify a probable target? :)

    Is volume necessary for this really?
  2. KS96


    You trade the breakout/breakdown. If it fails, you take the loss and reverse.
  3. Yes but what fail mean is the problem. How to define fail so that you get a high probability trade and good risk/reward?

    Like in this stocks Microsoft.

    It moved sideways and then broke down a little below what some people might have considered to be an important level for a breakout trade down. But it turned around and then went up fast instead. Probably because shorts were covered from the sideways. But did the move start with the stops that were triggered in the false breakout? hmm
  4. The stock formed a classic Head & Shoulders pattern.

    It's not about Stop Hunting at all. It's about reading the chart patterns and studying volume so you can trade successfully.

    This book gives a lot of good info on the subject:
    The encyclepedia of chart patterns


  5. Thanks JJ

    I really ment the sideways 20-25 bars ago. Looks like short covering there because it went up fast.

    You ment the inverted HS with low in June? The smart money is buying and others are selling or shorting. There is short covering there to that pushes the market up.

    Maybe one can say that fear of missing the HS moves it up as well so it becomes self fulfilling. But also fear of losing (stops)??
  6. Hey Paperboy,

    I like to keep my eye on the RSI. I like to watch for an RSI that is bottoming / topping out and gradually turning up / down in a smooth fashion. This will keep you from getting sucked into the false breakout / breakdown. In a false breakout the RSI will remain either in a down-move or pegged at a low value, and will show no signs of bottoming or reversing; the converse is true for the false breakdown. Plot a moving average of the RSI versus the actual RSI signal to smooth it out. I like catching moves where the RSI has smoothly bottomed or topped and is starting to reverse. Keep looking at charts and you'll know when to hit the nitrous (in a car, not through a mask). JMO.

    Good luck
  7. Pabst


    I'm not going to blow any smoke up your ass about doing this or doing that. Most of the advice you'll get is useless bordering on dangerous. Like the guy telling you to REVERSE. Nonsense. That's the kind of BS that'll chop you up AND get you on the WRONG side of the trend if the market suddenly resumes it's breakdown.

    You're WAY ahead of the game just by using the word "probabilities". That's why I'm responding. I like the way you're thinking.

    What market(s) are you trading? For starters do you see breakout opportunities? On what time frame? What's your preferred r/r?

    Going in blind here's my preliminary take. Don't trade breakouts.
    Why? Because their unquantifiable. I want a trade where I KNOW where my risk is. Breakouts are difficult to trade with close stops unless you take a "hail Mary" approach. If you keep your stops tight your hit rate becomes too low and if you widen them then your r/r becomes too low. Only worry about how a market will behave on new highs/lows if you ALREADY have a position!

    Trading with the trend is not akin to a breakout strat. I'd MUCH rather buy a pullback and have wiggle room than buy the highs and then be FORCED into selling them at a level that would probably be a compelling entry if I wasn't already stuck. Breakouts are seductive. So is staying in with low cards that are suited. It's SWEET to hit that flush. It also rarely happens.....
  8. In the context of triangles, a break out/break down that carries all the way to the apex is LESS reliable and prone to headfakes than a move that occurs well before.
  9. Impossible to answer... basically you are asking how to predict the market.
    #10     Sep 30, 2006