Konviction's Breakout experiment [beta 1.0]

Discussion in 'Journals' started by konviction, Jan 5, 2011.

  1. It's been about 6 months sinse my last real attempt at trading breakouts. There have been several threads on here on the topic, but all seem to fizzle out very quickly, some threads only a page or two long!!. In my last post about breakouts on gifropan's thread, I tried twice to reach him, and ask what happened, because very quickly, he stopped posting trades. This was about 6 months after he started the thread. The other posters stopped posting as well. With the high failure rate of traders, I can only guess that 90% of them got gobbled up by the market.

    Breakouts were the very first trading strategies I tried, so naturally I seem to gravitate towards them, hence this thread. It's weird that one of the most common trading methods is also the most difficult, caused in part by its attraction to amature traders. Wallstreet knows this.

    My trading has not delt with breakouts for quite a while, but rather another method called andrews pitchforks, which I really like, but the problem is that im in trades for so long it , that I want to learn other methods. Short term in nature.

    Over the past few weeks, I've been playing around with an experimental breakout strategy that, if profitable, could be taught to anyone. It's purely price action only, and the "rules" that I have established are at least for now rather simple.

    From gifropan's thread, I got into a squabble with nodoji about what constitutes as a true breakout. The consensus seemed to be, that a breakout was one where price broke above/ below a previous swing ( see thread http://www.elitetrader.com/vb/showt...55&perpage=6&highlight=breakouts&pagenumber=9 ) as I was drawing them incorrecly. According to NihabaAshi, there are several ways to trade breakouts, which in that case, I'd like to learn these other methods and the divergences he talks about. Mark, PM me if your reading this thanks. I dont want to take this thread off topic.

    Disclaimer: Rules of this method are subject to change.

    Now for the mechanics of how this will work: (for those that arnt familiar with martingale strategies, read up on it) Basically after a losing trade, we double our size from the first trade so we can break even and still make some some money on the 2nd trade. I tend to keep the risk on my first trade at 3% tops, but for this to work, I need to be comfortable doubling my risk to 6%. This is a demo right now, so no harm done. Here is a forex trader who uses this method, and seems to do quite well with it ( http://www.forexfactory.com/showthread.php?t=247220 ). If this style isnt for you, thats ok, but dont trash my thread please.

    Most traders see breakout when price breaks their trendlines, but this method of trading BOTS ( I will use this acronym from now on to stand for Breakouts ... less typing for me ) seems to lead most traders to their death, so how bout a new approach?

    For this method, we will use flat, horizontal lines only. No indicators. This can be traded on any market, because price will always make swings, however the most effective tf is yet unknown. Ive been playing with this in the forex market on 2hr charts, but this methos is still very young, but shows promise.

    We are looking for major s/r levels, or a "significant high or low" as I call it. A swing high or low that clearly stands out. Our trade long or short would be at the break of these significant levels, but as most bots fail, for that reason, we add to the position at the 50% level. The 50% level has a physiological impact on traders, and tends to be a make-or-break point for a trend.

    Should price continue against our trade and stop us out, we immediately reverse our trade, and use the original swing low or high as the stop point. The idea is that we were wrong about the direction of the trend the first time around, but by having our stop below a major level, and taking the right entries, then we can/should only be wrong once or twice before we nail a good run.

    The 1st target is 50% above/below the distance of the swing being measured. The green line on the chart is a 50% increase from the highlighted blue lines. I know that sounds confusing, but just look at the chart, and you'll notice all lines are of equal distance. Because bots fail more than they see explosive moves, we must take profits where and when we can. The green lines mark these profit taking levels.

    Assuming that after you take your T1, and the market either retraces or continues to run higher, our next target is the 100% level, or in other words 100% of the range of the swing being measured...again, just look at the chart and you'll see what I mean. After taking the T1, stops are moved to breakeven.

    The forex market sees explosive moves more often than stocks, but its still a rare, but enjoyable occasion.

    I think that covers most everything. If I miss anything I'll discuss it in later posts.
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  2. This 2nd chart shows the 2nd trade, which was a winning trade. This is just an example.

    The next 2 charts are sim trades on some FX pairs that I have still active.
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  3. Eur/gbp 2hr. The first circle shows the short entry, and the 2nd shows the place I took profits. The stop order there is my breakeven order, just below my entry. Nice to see that we're headed lower.

    Eur/aud 2hr. I forgot to mention "switch backs" but thats what this eur/aud trade is. I missed the breakout to the T1, but got long as it retested the support level. Target is the T1, looking for a double top, possibly higher highs.
  4. eur/aud ...

    note the diagonal line on there. Thats just to show you the swing thats in focus.
  5. Roark


    How about applying your methodology to kospi? I've identified two breakout price points by the horizontal dashed blue lines. If it crosses the upper blue line, go long, and short if it crosses the lower blue line. Stop-entries have been entered one-tick above and below the two blue lines. Position size for the initial entry is two contracts.
  6. Just going to stick with candles. It what everyone knows and uses.
  7. Roark


    Short entry breakout hit. Two contracts sold short at 275.75. Taking some heat. Order in to sell one more contract short at 276.3 (50% retracement of distance between long and short breakout prices).

    @konviction - candles? The charts I attached are using candles.

    update: Woot! T1 achieved. One contract taken off. Stop moved to break even.
  8. my bad. for some reason i thought that was renko charts.
  9. Roark


    Final target hit. Had that last target set too conservatively at twice the initial range between break out prices. Price has plunged far below the final target.
  10. Looks good
    #10     Jan 5, 2011