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How to Learn Price Action
- Thread starter SoCalTrader619
- Start date
Hi Dustin,
I for one, appreciate such fundamentally sound advice; however, how do you mange "fake breakouts"? Many stocks with volatility and unusual volume will start off as strong or weak, but subsequently reverse its direction for the day.
I guess strategies, such as buying strong stocks when the market is down or shorting weak stocks when the market is up, may help. Are there any other filters that you utilize, perhaps waiting until 10:00 or after news event before entering the market.
I recall you mentioning that you use Cyborg to trade thru Sterling, as well as link it to TradeIdeas for setups. I suppose the this allows you to trade several stocks simutaneously. Do you use a favorable risk:reward ratio, or do you base your exits on the profit or loss of your P&L.
thanks for your time...
Walter
I for one, appreciate such fundamentally sound advice; however, how do you mange "fake breakouts"? Many stocks with volatility and unusual volume will start off as strong or weak, but subsequently reverse its direction for the day.
I guess strategies, such as buying strong stocks when the market is down or shorting weak stocks when the market is up, may help. Are there any other filters that you utilize, perhaps waiting until 10:00 or after news event before entering the market.
I recall you mentioning that you use Cyborg to trade thru Sterling, as well as link it to TradeIdeas for setups. I suppose the this allows you to trade several stocks simutaneously. Do you use a favorable risk:reward ratio, or do you base your exits on the profit or loss of your P&L.
thanks for your time...
Walter
Quote from Dustin:
Most new guys make trading so complicated, because they don't know any better. The problem is they need a strong base, or starting point. I just provided them that in an incredibly simple statement.
"ONLY buy strong stocks, ONLY sell weak stocks."
Do I ever do countertrend trading? Yeah every day, but I can tell you it's 2-3X harder then trend trading and about half as profitable. As a new trader they should forget the idea completely. In fact they should ban themselves from it.
Forget the proof. Take the idea and trade it small for a week. If you (anyone reading this) aren't profitable yet then what's the harm? Don't try to backtest, just trade it small. I can't stand backtesters. You don't learn to trade that way.
Take all the indicators off of your charts except volume. Forget T&S, LII, Open Book, ticks, candles etc. Forget anything else you think you know, and just try it. And use charts, lots of them.
I know from reading this board for ten years that nobody will actually do this, but I was compelled to write it anyway.
Quote from jones247:
Hi Dustin,
I for one, appreciate such fundamentally sound advice; however, how do you mange "fake breakouts"? Many stocks with volatility and unusual volume will start off as strong or weak, but subsequently reverse its direction for the day.
I guess strategies, such as buying strong stocks when the market is down or shorting weak stocks when the market is up, may help. Are there any other filters that you utilize, perhaps waiting until 10:00 or after news event before entering the market.
I recall you mentioning that you use Cyborg to trade thru Sterling, as well as link it to TradeIdeas for setups. I suppose the this allows you to trade several stocks simutaneously. Do you use a favorable risk:reward ratio, or do you base your exits on the profit or loss of your P&L.
thanks for your time...
Walter
First I'll preface with "this market sucks". Breakouts fail now more than ever and choppy midday action is really tough to sit through. No equity traders I know are doing very well in this market.
That said, I rarely buy breakouts as they are happening. Usually I'm in them long before, and adding into the breakout. That way I have wiggle room.
A couple examples from today...
DAKT: had nice volume for the fist 30 mins that didn't really trail off so I started in the high 8's with a small position. Added when it broke 9, and a little more above that, then tried to let it ride. I was hoping for 9.5's and obviously didn't get it, but the trade still made a little money and I was never in the red.
RDWR: got a volume alert on that early spike, before it broke multi month highs. When I saw how important the 24.50 level was I took a small trade and held after the first try failed. When it firmed up again I added, then added again when it finally broke over .5. Still holding a few but I think it's done for now.
I still take into account what ES is doing, so I'm sure not to be buying too much when ES is overbought and vice versa for shorts. When a breakout is about to occur and ES is just coming off a low stoch reading those are my favorite because the market has room to run so there's a tailwind for your trade.
The stuff I use cyborg for is not related to breakouts, only some reversion stuff and news related plays. For R:R I typically would like to be able make at least 2x as much as my possible loss, but it's not an exact science.
thanks for the feedback, Dustin...
I guess I just need to develop better entry points and risk:reward profile. I would have been stopped out of the DAKT trade, as I would have only risked about 5 cents or 10 cents for a breakout. I would have gone long at about 8.95 and covered with a loss.
I've had the misfortune of expanding my stop loss to give the trade "more room", only to watch the price go all the way down to the expanded stop loss price point. I believe that it's more important to be consistent than to second guess which trade should have more room vs. less room.
A fundamental problem with breakout trading is that there is no nearby technical level (i.e. support on a long position) to use as an exit point for a loss. I suppose I could wait for a temporary pullback before entering a breakout position, but many breakouts don't pullback until they've already move a great deal. Therefore, I would probably miss many setups if I were to wait on a retracement...
This trading game can be sooooo frustrating...
Walter
I guess I just need to develop better entry points and risk:reward profile. I would have been stopped out of the DAKT trade, as I would have only risked about 5 cents or 10 cents for a breakout. I would have gone long at about 8.95 and covered with a loss.
I've had the misfortune of expanding my stop loss to give the trade "more room", only to watch the price go all the way down to the expanded stop loss price point. I believe that it's more important to be consistent than to second guess which trade should have more room vs. less room.
A fundamental problem with breakout trading is that there is no nearby technical level (i.e. support on a long position) to use as an exit point for a loss. I suppose I could wait for a temporary pullback before entering a breakout position, but many breakouts don't pullback until they've already move a great deal. Therefore, I would probably miss many setups if I were to wait on a retracement...
This trading game can be sooooo frustrating...
Walter
Quote from Dustin:
I still take into account what ES is doing, so I'm sure not to be buying too much when ES is overbought and vice versa for shorts. When a breakout is about to occur and ES is just coming off a low stoch reading those are my favorite because the market has room to run so there's a tailwind for your trade.
.
When you say you are using the low stoch reading for the ES, is the timeframe different than the instrument you are trading?
ie. 30 min stoch chart, vs 4 minute stock chart? or vice versa?
A few current examples
ES currently just went oversold on stoch so I'll be looking to add to any long breakout trades like CWTR PAY OB. Tight stops in all 3, but ready to buy any strength, especially if ES perks up.
This type of trading only works when breakouts are actually working overall. This market has seen a few successful examples in the past week so I'm a bit more aggressive than in the past months.
ES currently just went oversold on stoch so I'll be looking to add to any long breakout trades like CWTR PAY OB. Tight stops in all 3, but ready to buy any strength, especially if ES perks up.
This type of trading only works when breakouts are actually working overall. This market has seen a few successful examples in the past week so I'm a bit more aggressive than in the past months.
Quote from Dustin:
A few current examples
ES currently just went oversold on stoch so I'll be looking to add to any long breakout trades like CWTR PAY OB. Tight stops in all 3, but ready to buy any strength, especially if ES perks up.
This type of trading only works when breakouts are actually working overall. This market has seen a few successful examples in the past week so I'm a bit more aggressive than in the past months.
How do you read the Stochastic during heavy liquid directional moves when it sticks to the top or bottom of the indicator?