Break-outs and pullbacks

[fatrat]

Do you guys trade the initial break out or the pullback? What's your method for determining whether a break-out was legitimate or not?

How does a break-out trader survive, exactly. I lose so much on all the false starts and don't quite have a grasp of when to terminate the trade. Everyone knows when the break-out happen, but how do you know that the break-out you chose was -the- break-out?

It's not as easy as it looks, and break-outs are supposedly the easiest strategy.

 

[NihabaAshi]

Quote from fatrat:

...It's not as easy as it looks, and break-outs are supposedly the easiest strategy.

Every person I know that trades or talks about breakout strategies saids its one of the most difficult methodologies.

Those that told you its easy...they are the ones you should be asking questions about the details of what exactly they are doing that's different from what your doing.

It seems the following is key to trading breakouts profitably:

* Understanding Volatility Analysis.

* Ensuring the market internals (market breadth) is supporting the breakout.

* Understand Divergence because they are big clues to breakouts that will fail.

The latter above involving divergence should be part of any breakout strategy contingency plan (plan B when plan A fails).

In fact, a trader that trades breakouts while not trading divergence, is a trader at a disadvantage because the trading plan is not complete.

Thus, knowing when to minimize a loss, protect profits or reverse a trade position after taking a trade based upon a breakout strategy is dramatically increased if your also trading divergence.

Mark

 

[4re]

Your success depends on what kind of breakouts you are attempting to trade. I have successfully traded S/R breakouts and chart pattern breakouts for years and would not think of trading any other way. The best thing I can tell you is to learn 1 or 2 different things and master them. Then start really trading them.

Gary

 

[K-Rock]

Quote from 4re:

Your success depends on what kind of breakouts you are attempting to trade. I have successfully traded S/R breakouts and chart pattern breakouts for years and would not think of trading any other way. The best thing I can tell you is to learn 1 or 2 different things and master them. Then start really trading them.

Gary

Checkout 4re's closed journal at:

http://elitetrader.com/vb/showthread.php?s=&threadid=69230

P.S. 4re, everyone is waiting for you to start part 2 of your journal!

 

[cashmoney69]

Quote from fatrat:

Do you guys trade the initial break out or the pullback? What's your method for determining whether a break-out was legitimate or not?

How does a break-out trader survive, exactly. I lose so much on all the false starts and don't quite have a grasp of when to terminate the trade. Everyone knows when the break-out happen, but how do you know that the break-out you chose was -the- break-out?

It's not as easy as it looks, and break-outs are supposedly the easiest strategy.

"Do you guys trade the initial break out or the pullback? What's your method for determining whether a break-out was legitimate or not? "

In simple terms...if you miss the break out, you can enter when the stock makes a correction (pull back), but unfortunately it's never that easy.

In my opinion, to see whether a break out is legit, look at it on a daily chart. I may be wrong here, but if you dont see a volume spike..or at least higher than avg volume on the day of the break out...its probably a fake..



I wait for a stock to penetrate a trend line on daily charts before I enter. Here is a chart for Walgreens that I held for 22 days. There were 3 pullbacks for traders to take part in the trend.

You may be buying/ shorting to soon. Wait for a trend line penetration before entering and I'm positive you'll be better off.

cm69

 

[4re]

Quote from K-Rock:

Checkout 4re's closed journal at:

http://elitetrader.com/vb/showthread.php?s=&threadid=69230

P.S. 4re, everyone is waiting for you to start part 2 of your journal!

Thanks K,
I am hoping to get back into the day trade scene someday soon. My next journal is going to be about trading chart patterns. Flags and pennants mostly. We will still do some S/R trading as well.

I hope your trading is going well.

Gary

 

[whoispaul]

Quote from 4re:

Thanks K,
I am hoping to get back into the day trade scene someday soon. My next journal is going to be about trading chart patterns. Flags and pennants mostly. We will still do some S/R trading as well.

I hope your trading is going well.

Gary

just curious - based on our handle - do you drive a Ferrari?

 

[4re]

Quote from whoispaul:

just curious - based on our handle - do you drive a Ferrari?

LOL..No, I saw a real nice red one drive by the day I signed up with ET so I used that name.

 

[whoispaul]

Quote from 4re:

LOL..No, I saw a real nice red one drive by the day I signed up with ET so I used that name.

 

[4re]

Quote from whoispaul:

I am just your plain old everyday Pickup driving tobacco spittin Texan that owns a Company that diagnoses brian and nervous system disorders. And I have been trading for about 14 years on the side.

Actually I am on the patch trying to quit my tobacky. Man that sux.