As is widely known, false breakouts are an unavoidable part of most breakout strategies. As an example, let's say we have determined that there is resistance at 100 USD. Price breaks out of 100 USD. It reaches 105 USD. We become excited and buy in. Price then climbs to 110 USD before abruptly dropping down to 95 USD and hitting our stop loss. Perhaps a better strategy would be as follows: (a) Price is consolidating around 95 USD. We see an ascending triangle, and think that price may break out. (There are a series of higher lows starting from 95 USD. The highs are all around 100 USD.) (b) Using Al Brooks's scalping techniques, we buy at a suitably-low point, while price is still ranging in the ascending triangle. (c) We set the stop loss at break even. If price breaks out for real, then we make a big profit. If there is a false breakout, we don't lose any money. Al Brooks comes into the picture, as his concepts are supposed to tell us which candle to buy into. Afterall, his book is named Reading Price Charts Bar by Bar. In theory, after reading that book, we should be able to tell when the next candle will likely reverse upward, when price is at the bottom edge of the ascending triangle. Has anyone tried this?
eh no he did not teach you which candle to buy but read the context and weight the probability. If you jump in too early, then probability is low but risk is low and reward is high. If you jump in too late, then probability is high but risk is high as well with lower reward. His style is not about scalping or swinging. He did both. He just outlined how to read the context so that you can formulate your own plan. He did not tell you if this happen, jump in to buy A , B or C.
in those situations, the best thing to do IMO is to wait for confirmation. Remember that if the market in a trading range, most of the breakouts will fail.
Yes. Based on my recent experiences, I am likely to buy in at the three high points and lose a bit of money each time. I would be particularly persuaded by the huge volume at the beginning of November that, despite the ultra-high volume, the bears were unable to keep the price down for long, and so ultimately the price would have to break out of the congestion zone.
Due to a lack of time to sit down and focus, I am still struggling with Al Brooks's materials (not past Chapter 3 yet), and so I may be misunderstanding him. What you say would be the usual logic - e.g. wait for a confirmation. However, (a) In one of Rayner Teo's videos, he suggested the possibility of buying during the consolidation in the case of an ascending triangle. (b) Also, there are many people, who say that we should enter where we would normally set our stop loss. If most people put their stop loss below the preceding market structure, e.g. below the ascending triangle, wouldn't that be, in this theory, the proper place to enter? What are your thoughts on this?
If you like to trade breakouts and buy during consolidation, then I recommend you to read Bob Volman: . His book is an easier read (comparing to Brooks). Note that his instrument is Forex but it did not really matter. Of course you can buy during consolidation. However, you may need to wait a long time. And the chance is 50/50 in other directions. Looking at previous false breaks, recent pressures (e.g. RSI > 50 or < 50) will improve your chance a little bit. As for the 2nd strategy of entering in possible SL point, that is also valid. That is taking advantage of false BOs and traps. In the grand scheme of thing, it did not really matter. If you are in a range, even if you are wrong in first entry, you still can break even or get small profit when price pull back (it is very rare that price just go in 1 straight line). You will only lose if the price reverse strongly in 1 direction for a long time.
I would suggest you read more on market structure i.e. break out -> tight/broad channel -> trading range and back again. Once you know which stage the market is at, it is easier to enter. In BO or channel, follow the trend, enter with stop orders In range, do reversal, enter with limit orders
Rather than an ascending triangle, I prefer to look for a "gradually moving sideways rhombus". In my backtest with 7 trades on the NQ over the last 6 months this worked perfectly. GAT