A scrapbook for trading stuff of interest to
me.
Breakout Study - Preface
I posted this in another thread, and as I've thought about this more today, I decided I wanted to do a little study based on this, and so I am putting here and I am going to post a few other scribbles that are based on this scribble.
Find the range, and then think breakouts, reversal, retracements. The
tests (yellow circles) of the range limits should be of interest to the "definition of a breakout" crew. Price at each of the yellow circles "broke out" of the range limited by the pivot points (arrows), but only the fourth became a breakout
signal, imo. Some people may have traded all four as breakouts. Others only the fourth. This is what is meant when one says that each individual trader must define for him or herself what a breakout is for the instrument he r she trades, and then each individual trader must then create the trading plan that tells one ahead of time under what conditions a breakout becomes a signal to act, and under which conditions it signals nothing at all, and under what conditions does it signal a trade opposite the breakout, aka a reversal.
Now, if you have to ask "why would you trade the 4th BO as a BO but not the 1st or 2nd or 3rd?" then you need to look at each very carefully and identify what price did at the 4th that makes it different from the first 3. It is this study that will follow.