very new to trading, currently paper trading with scottrade elite. so after a bit of reading and screen time. losing some money making risky opening trades and stuff like that. i've realized one of the most tradable patterns ive been able to identify is a channel breakout. these are intraday breakouts and have been working out pretty well for me. i try to research it and all i get is a lot of information about breakouts from channels that are weeks or months in range. my current strategy consists of trading short range long intraday breakouts is this a viable strategy? what type of things should i look up to further improve this?
Channel Breakouts? am i doing this right?
- Thread starter antincedo
- Start date
I've been trading full time for 8 years, part time since 1992. Your question is a good one and if you have lots of time and lots of money to learn, keep doing what you are doing. My reason for the link was that the site saves me lots of time and gives me opportunities to learn and profit. You can look at many sites, services and books. Been there, done that. I gave you my advice. The good thing about advice is that you get to choose to listen or ignore it. 
What's the big deal? You just take what's recommended for, say, weeks and see if it applies to 15 minutes or whatever your time frame is.
Bars are bars, the only difference is the time scale they're based on. Not sure what you need to "improve" if your current trading strategy is "working out pretty well", but there's no need to get hung up on time-frame differences unless the suggested strategy only works for a specific time frame, in which case it should be avoided. If you're talking about what specific parameters for a given type of channel breakout work best in your time frame, that's a matter of trial-and-error experimentation.
A pretty common pattern for breaks out of consolidation intraday is whatever the overall trend was prior to consolidation will continue when the later day breakout or breakdown occurs.
Two things can seriously break up this common trend: 1) an abrupt change in the overall market trend that's been established (generally a result of news), and 2) prices approaching near term or longer term support/resistance levels.
Two things can seriously break up this common trend: 1) an abrupt change in the overall market trend that's been established (generally a result of news), and 2) prices approaching near term or longer term support/resistance levels.
I would look at the whole intraday picture. Say the stock broke out to upside in the first 20 minutes, then reversed and moved down below the opening price until it consolidated during midday. In a case like that, it's quite possible it could break out to the upside again to test the opening price. But if a stock has been on a downtrend all morning and is not approaching a near term (or major) support level, chances are it will continue to move down.
Another thing that acts as as "mini-support/resistance" is round numbers. I'm sure scalpers have a field day playing the little counter-trend moves that occur when a stock tests a round number price up or down (either the dollar or half dollar). For example, a stock opens at 30 and trends downward, then it hits or dips just below 29 and has a small reversal before continuing the down trend.
Once again, support/resistance play a big role in trend continuation. Take a look at JCP's chart for Thursday and Friday. You'll see that Thursday's LOD was 40.44. That was the opening low and it moved up to 42.40, ranged during midday in the 42 area, then continued the uptrend. That's the common pattern, especially since it's trading smack in the middle of the past week's 41-44 range. Friday poor retail numbers came out, the stock gapped down at open and continued down. It attempted a reversal off 41.50, stalled just above 42 (round number S/R's), and continued the down trend. Where do imagine it will attempt the next reversal? Most likely at Thursday's LOD in the 40.50 range, and sure enough if bounces off 40.58 and moves up the rest of the day. I would guess that if Thursday's low had been 40, it would've continued to move down until it hit that price level.
Then there are the moves that defy all logic and that's why we set stops :eek:
The great advantage of trading channel breakouts is that you get a lot of chart history to base your trade on. Trading at the open can be pretty risky. I've seen a company with a pre-market triple play earnings report (upside earnings, revenues and guidance) gap up at the open and immediately drop 10-15%. Why take that kind of risk when you can just wait for it to drop, at some point reverse, pull back, fail to make a lower low and then have a great breakout to the upside.
When a stock tests the high or low of the day and fails to make a higher high or a lower low, chances are pretty good it will continue the reversal that occurred off the LOD or HOD. For an several examples of this, look at the 3-min chart for ADBE yesterday. It hits new lows and bounces off 40.19. The next bar it bounces off 40.20. You could get in and take a fairly quick 20-30 cent profit at that point, but if you're patient and wait until later in the day, you're going to get a piece of the better move. A little after 2 p.m. ADBE hits the true LOD @ 39.90. Don't try to pick a bottom here, stay patient. It bounces, pulls back, but this time it bounces off a higher low of 39.98. Not only that, the stochastic indicator says ADBE is extremely oversold at that point, so you can safely put on the trade, set the stop just below the LOD, and enjoy the best move of the day (over .60 cents a share). I would say that most of my trades are based on this strategy.