Nothing in the "failed break" chart you post even resembles a breakout trade. First of all price is in a downtrend and secondly it never even breaks through previous resistance. What you'd be watching for here, if anything would be a new break through previous lows, or an eventual reversal signal.
The most common meanings of "breakout" are:
- a break through a previous high in an uptrend or a previous low in a downtrend.
- a break out of a consolidated range (the best breakouts in this genre are out of a consolidated range on low volume in the direction of the previous move).
Absolutely. That is what breakout trading is about. In the "failed break" chart Konviction posted the trend has reversed and you're now selling rallies that fail to break thru the 20-bar MA with conviction or selling breaks thru the previous low.
AAPL is a rock solid breakout trading vehicle. Today it put in a morning high of 219.62 and I was all over it on the breakout. Long at 219.64 and I'm not gonna say where I exited because it's just plain sad. :eek:
AAPL had breakouts thru previous resistance in an uptrend today. This is an awesome strategy for stocks with high short interest or stocks that have made strong runs and gathered a lot of very recent short interest from early shorts, who short too soon for no other reason than "it's too high", and certainly before an actual short signal has been put in. Some recent examples are BIDU, GMCR, NFLX, ISRG, and DECK. ( I used to frequently be one of those early shorts until I learned my lesson, which is: it's much easier to surf if you move in the same direction as the wave.)
A nice intraday example of a "narrow range consolidation on low vol breakout" is AIG today. It mills around on low volume for over half the day, then as soon as it breaks thru the high of the range, it's off to the races.
I agree that there are many failed breakouts, and you do have to sacrifice some soldiers in battle. However, a failed breakout is readily apparent and your tight stops in these types of trades lets you have quite a few scratch trades or small losses that are more than made up for with the big fat moves on true breakouts. In fact, a failed breakout is one of my favorite reversal signals when it occurs after a long, strong move in one direction. (Look at AAPL's final attempt to make yet another new high today between 2:15 and 2:25. After a long uptrend like that a failure to make a new high late in the move means longs will want to take their profits and the patient short-sellers will have their moment in the sun.)
This price action translates well to swing time frames as well. For example, GMCR consolidated in a range between 80.00 and 85.00 for nearly a month before breaking out in the same direction of the previous move and making new 52-week highs. Ivica sniffed out this one perfectly last week: http://www.elitetrader.com/vb/showthread.php?s=&threadid=156582&perpage=6&pagenumber=8
. Look at 21.00 level....this year we broke, and closed above 21 (resistance) and now pulled back... to me, and others, this is bullish, and a chance to buy at discount prices...