Breakouts/Breakdowns - How do U trade them?

hapaboy..

the thing about trading breakouts is to anticipate the anticipators.. you dont want to chase a breakout more than a few pennies over the break price if you get in late.. often, they pull back to the break area before making a move anyway.. but here is what you want to look at before you run and jump into a breakout..

1.) market trend.. market going up? dont waste time with breakdowns.. market going down? dont wast time with breakouts.. market chopping? best to look for failed patterns..

2.) support/resistance of the stock (and market).. as ArchAngel said, there is no point in buying a breakout into a resistance area.. ideally you want plenty of room overhead for the stock (and market) to make a move.. so check the larger time frame for gaps.. flag lines.. previous pivot areas.. previous days high/low.. trend lines.. 20, 50, 200 mas.. and fib levels..

3.) beware of cup patterns where the breakprice is near the days uptrend line.. beware cup patterns when the second high completing the cup is slightly lower than the first high.. (this is a flag and requires a different entry).. beware cup patterns where the bowl of the cup is deep or V ish.. beware head and shoulder patterns with high volume on the second shoulder.. beware of head an shoulder patterns where the break price is near the daily trendline..

4.) always enter with respect to your stop.. if the stop price is too far away, then wait for the price to pullback.. assume that the stock will stop you and try to get an entry as close to your stop as possible..

5.) once the stock breaks on high volume.. if it doesnt move in the direction expected, it will move against you.. get out.. dont be the bag holder..

6.) dont trade really thin issues.. failed breakouts can really hurt when you get trapped in something without any bids.. dont do it..

good luck =)

-qwik
 
Hapaboy ;[1] Since I like to read, read a multitude of indicators.That is read many,it tends to look clear what may work,or if looks unclear,look at another stock.[2]Just reread this post:) [3]Intraday trading[not scalping] including but not limited to look on - 50 days thru-5 minute candlecharts...................[3]I'll tend to go long quicker when the weekly trends are like Oct.,Nov,.2001,intraday trading,or whatever timeframe...........but still look at a multitude of indicators [4]Have bottom fish at the bottom of my list,it works, [Feb] but not my favorite. [Think 5]There are a lot of little things you can do-I use the same color on my downtrend volume as in my trading books----------''daisycutter''black.Reminds me to cut losses on impact,like daisycutter cuts down enemy!!:cool:
 
Excellent Post indeed....a question or two for you.

Originally posted by qwiktrade
Beware of cup patterns where the breakprice is near the days uptrend line.. beware cup patterns when the second high completing the cup is slightly lower than the first high.. (this is a flag and requires a different entry).....
More...

My definition of the break price for a cup pattern is the high of the left side of the cup....so I would not be entering on a lower high right side of cup anyway. Am I misinterpreting your point here?

Originally posted by qwiktrade
always enter with respect to your stop.. if the stop price is too far away, then wait for the price to pullback.. assume that the stock will stop you and try to get an entry as close to your stop as possible..
More...

Yes indeed great point. However for me, most of the time when I am buying a breakout of any type other than a consolidation b/o, the previous support area that could be looked at as a stop level is almost always too far away from an economic perspective (IE would result in too large of a loss for me). Thus I set stops based on giving the trade enough wiggle room in combination with how much pain am I willing to take on it. This has always seemed littel basic and/or vague for me but I have not come up with anything else. ANy thoughts?

Thanks
 
Our "break-out/break-down" traders who were labeled the "Dream Team" for years in Chicago have had a rough time the last year or so. We try to remember that the charts tell us "what" happened (or is happening), but not the "why" ...and the current markets are so sensitive to outside factors (news, interest rates, and now even "accounting debacles") that we have even less confidence in the viability of intra-day chart patterns.

We now filter for volatitilty breakouts (using 1, 2, and 3, standard deviations) that either correspond with the market, or go directly against the (overall) market. Use the individual historical volatility -( determine the daily by taking the vol x price divided by the square root of time or roughly 19 ) and you will have a decent chance to see some potential breakouts. Try only filtering for this and be sure to compare it to the VIX (I like to see the implied vol on the actual stock as well) .....you will see some real time trading set ups.

I usually shy away from the more "technical" posts, but this is pretty basic stuff here, and I thought I could share a bit of what the "smart guys" are doing (not me) :-) We use the same information for intra-day trading and have added this to our training to reflect current market conditions.

Always remember that the breakdowns are much more fun and fruitful....ala Enron, etc.
 
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