My last experience of breakout trading has been inconclusive as almost all my trades finished in a loss at the first market retracement that occurred at the beginning of this month. I also understood that I was often taking the trades in very mature trends at a moment where a retracement could very well transform itself in a change of direction if the entire market was also retracting like it did recently. For these reasons I have completely changed my strategy and will no longer update those journals.
I concluded that I needed a better timing and a more robust setup to enter a trade and one which was somehow confirming, if possible, a newborn trend instead of entering in the middle of a trend that was maybe terminating or pausing for a long period.
After some study and eye training I have decided to trade the Cup & Handle pattern which I am now able to spot and for the only reason that it seems very reliable. In addition to that, it also fulfills the Darvas method which I like.
For the timing component, the idea is to enter in the early stages of the Wyckoff’s Markup phase. Let's say first base or second base.
The final motivation of taking the trade is that a stock that first enters what could be the beginning of its Markup phase and second, draws a Cup & Handle pattern and breaks out as expected, are good indications for more upward movement to come.
When starting my study, my first impression was that Cup & Handle patterns were rather scarce and that I would not have much material to trade so I manually scanned charts for them, this had the benefit of training my eyes to catch them and finally found out that yes, not all the stocks draw a cup & handle when entering the markup phase but still they are not that rare and when they do, you’re almost assured that a good trend has just started.
I’m not detailing here the work needed to find out tradable stocks and what is my precise criteria but only my trades. My risk is the same as in my previous strategy, 10% the cost of the trade. On the contrary, the number of stocks I will trade simultaneously will be lower, I think 10 will be a maximum.
I expect a risk/reward ratio to be in the range of 3-5 which could allow me a Win Rate as bad as 30% to be break even and the trades to last something between 2-6 months, 6 months being a hard limitation and this is based on what I have observed in the 100 stocks I have studied.
Not all cup & handle patterns will be perfect in shape, duration etc but as an example, and a recent one, below is what I look for.
VITL Stock at the moment at which the trade should have been entered with the pattern in yellow.
And VITL now !
That trade would have returned 162% using the EMA20 as a stop loss and this is not even reaching my 6 months limit !
I will update the status of my trades on a monthly basis starting at the end of the month but questions and remarks are welcome anytime.
I concluded that I needed a better timing and a more robust setup to enter a trade and one which was somehow confirming, if possible, a newborn trend instead of entering in the middle of a trend that was maybe terminating or pausing for a long period.
After some study and eye training I have decided to trade the Cup & Handle pattern which I am now able to spot and for the only reason that it seems very reliable. In addition to that, it also fulfills the Darvas method which I like.
For the timing component, the idea is to enter in the early stages of the Wyckoff’s Markup phase. Let's say first base or second base.
The final motivation of taking the trade is that a stock that first enters what could be the beginning of its Markup phase and second, draws a Cup & Handle pattern and breaks out as expected, are good indications for more upward movement to come.
When starting my study, my first impression was that Cup & Handle patterns were rather scarce and that I would not have much material to trade so I manually scanned charts for them, this had the benefit of training my eyes to catch them and finally found out that yes, not all the stocks draw a cup & handle when entering the markup phase but still they are not that rare and when they do, you’re almost assured that a good trend has just started.
I’m not detailing here the work needed to find out tradable stocks and what is my precise criteria but only my trades. My risk is the same as in my previous strategy, 10% the cost of the trade. On the contrary, the number of stocks I will trade simultaneously will be lower, I think 10 will be a maximum.
I expect a risk/reward ratio to be in the range of 3-5 which could allow me a Win Rate as bad as 30% to be break even and the trades to last something between 2-6 months, 6 months being a hard limitation and this is based on what I have observed in the 100 stocks I have studied.
Not all cup & handle patterns will be perfect in shape, duration etc but as an example, and a recent one, below is what I look for.
VITL Stock at the moment at which the trade should have been entered with the pattern in yellow.
And VITL now !
That trade would have returned 162% using the EMA20 as a stop loss and this is not even reaching my 6 months limit !
I will update the status of my trades on a monthly basis starting at the end of the month but questions and remarks are welcome anytime.
