Do you guys think that trading based on breakouts/breakdowns of trendlines, and or support/resistance is a statistically viable approach, that is with an edge. Obviously it will depend of time intervals, the 'significance' of a price point, and the instrument traded, but do you think that with the right variables and the right conditions it is a viable approach long term?
You already know the answer to your question. Price action can disperse around a vector, angled up or down. When those vectors change, it marks a break in: 1) trendline 2) moving average cross over 3) travels within ATR 4) hits resistance or support, top or bottom of ATR 5) breaks or bounces off S/R, top or bottom of ATR ,.... all catalyzed within a time interval based on a event or orderflow given the market dynamics.. above is concise description of all price action. if you understand the above, statistically where would you enter a trade to minize stop loss being hit or even better when would you enter a trade.
Breakouts are no different than an other signal, it is a coin flip of being profitable is 50/50, one's back testing of risk, can greatly improve the 50/50, but good trading comes from much study and testing on how it will work for you. And drawing trend lines is not as easy as it looks, that a great deal of skill cause when markets go into chop or sideways price action for months or even years, you have to be skilled enough to know when to pass and trade anything else. On intraday trendlines there is much more false signals as many who day trade are under funded and larger entities know this and can push markets to trigger stops then go other original directions, it is almost comical at times watching it, and of course am joining in to get a few ticks.
Spectre, isn't your chart posted above (looks like a daily chart?) a bit too large to set reasonable stops for the average trader?
any chart can be used as a analog to daily or intraday. The principles you apply intraday can be used for the daily. The same waves appear on all time frames. The main problem with daily is the interruption on bar generation from one session to next and gaps from previous close to open can destroy risk management. Intraday is easier for risk management since it's always in play.
As with any pattern you have know "how" to trade it and you have to know what it means when the pattern fails and what to do about it.
Hello, I try to trade this way as well, without the trend lines, just support and resistances. I have noticed the trend lines just get in the way during intra-day trading. Trading breakout is doable, but just keep good records of each trades on how you want to trade it. Manually back testing breakout based on support and resistance is a bit of challenge, cause you have to test for the following: 1. Where will you enter after a breakout? Will you enter on retrace? How much of a retrace? Will you enter on stop order as the breakout occurs? How much distance above resistance will you place the stop market? 2. Where will you exit the trade? How will you define your profit target? How will you define your stop loss? How much stop loss and where to place stop loss per trade? 3. What will you do on false breakout? When will you re-enter the trade or do you even re-enter the trade after failed breakout? What is a false breakout to you? Once you have those questions answered, then you just start back testing to see if the answers produce some profitability over a series of trades. This is just my 2 cents
Yes, it can be. Horizontal trendlines, anyway - those represent S/R, obviously. (I have no use for diagonal trendlines, myself, though I know some others do.) Whether or not it actually has an edge, of course, depends on a variety of other provisos, trade management, and so on. Entry methods are not trading systems. It's fundamentally a "category error" to discuss whether an "entry method" has an "edge". I know it is. But as with everything else, those "right variables" and "right conditions" are what determine its long-term viability. Those aren't just "mere details": they're the heart of trading.