So guys...what do you think is better and why? How do you do it? Get in at breakouts or do you wait for pullbacks?
Should be an interesting discussion!
Should be an interesting discussion!
Get in at the BREAKOUT OR wait for a PULLBACK?
- Thread starter daniel_tysen
- Start date
So guys...big advantage of trading breakouts:
- Don't miss a trade if there's no pullback
And the other side of it:
- Might get into "false breakout" quite often...since you don't know before the fact.
- Don't miss a trade if there's no pullback
And the other side of it:
- Might get into "false breakout" quite often...since you don't know before the fact.
This the million dollar question IMO - if you can filter when the breaks are real vs. fakeouts, you can make a lot of $ quickly.
It's just developing that filter thing.
It's just developing that filter thing.
If you wait for a pullback then you will miss every trade that does not pull back to your entry point. If you enter every breakout, you will get stopped out of every false breakout. That's the unavoidable trade-off. Which one to choose depends on the odds of either scenario happening - this is not something that can be calculated with precision, although backtesting, and good judgement, will help.
You should assess the chances of the breakout being genuine vs a false breakout, and make sure you have a contingency plan for what if you are wrong. I.e. if you see that sentiment is bullish, there has been a large runup already, and Cramer just recommended the stock on CNBC, the chance of the breakout being false are quite high. But you need to plan for what if in fact it is a genuine breakout, and the stock is about to go on a 50% move in the next 2 months - sitting there waiting for a 2% pullback is not acceptable in that case, so you must have a point at which you change your mind and just get in to the move, even if at a higher price.
As usual in trading, there is no 'pat' answer or trading rule that works in all situations. Ultimately you must use logical thinking and rational analysis to answer these questions for yourself. There is no substitute for a detailed analysis of the specific market situation you are trading, including considering as many potential scenarios as you can, and thinking deeply about the best way to trade each scenario. If it were as simple as applying one basic rule, we would all be rich.
You should assess the chances of the breakout being genuine vs a false breakout, and make sure you have a contingency plan for what if you are wrong. I.e. if you see that sentiment is bullish, there has been a large runup already, and Cramer just recommended the stock on CNBC, the chance of the breakout being false are quite high. But you need to plan for what if in fact it is a genuine breakout, and the stock is about to go on a 50% move in the next 2 months - sitting there waiting for a 2% pullback is not acceptable in that case, so you must have a point at which you change your mind and just get in to the move, even if at a higher price.
As usual in trading, there is no 'pat' answer or trading rule that works in all situations. Ultimately you must use logical thinking and rational analysis to answer these questions for yourself. There is no substitute for a detailed analysis of the specific market situation you are trading, including considering as many potential scenarios as you can, and thinking deeply about the best way to trade each scenario. If it were as simple as applying one basic rule, we would all be rich.