What do you think of BUY on Breakout strategy

B

buwa84

Hi All,
A newbie trader here. Currently i'm trading with a very a small balance just over $1000 to test the market. I'm not looking to make money but just to prove my analysis is correct before i deposit a large sum. I've been focussing on buying stocks when they a technical breakout. However most times i see that even though the stock breaks out the price either it doesnt travel high enough or if it break out today tomorrow it will come down... For a newbie is the breakout strategy a little bit advance.

Thanks
 
Let me give you a piece of advice. Take your $1000 and buy nice piece of ass or some really good drugs! At least that way you will be happy for a few hours and will know where your money went.

Now let me give you a strategy. Only buy breakout on small to mid cap stocks that have some kind of news where it has a longer term impact on earnings. But if you find a stock that you missed the breakout on, then do the next best thing. Buy another competitor with the same pattern forming. Sector stocks tend to move together. So if you find a stock with a good breakout then chances are their competitors earnings will also improve. It is like if Home Depot's sales sky rocket then chances are Low's will too (same industry). The trick is to stay away from larger companies because there is always some fund that won't mind taking a profit or getting out when they can.
 
Welcome to ET.

Buying breakouts is a pretty decent strategy in a raging bull market. It can be frustrating when the market is in a range or backing and filling. As you've noticed, people who are already long the stock often use a new high as a place to lock in some profits.

Trying to pick bottoms can also be dangerous, as what looks beaten down often gets beaten down even more.

If it was easy, everyone would make a lot of money, but few do. My advice is whatever you do, be disciplined and don't let any one trade go too far in the red.

Good luck.
 
buwa84 said:
Hi All,
A newbie trader here. Currently i'm trading with a very a small balance just over $1000 to test the market. I'm not looking to make money but just to prove my analysis is correct before i deposit a large sum. I've been focussing on buying stocks when they a technical breakout. However most times i see that even though the stock breaks out the price either it doesnt travel high enough or if it break out today tomorrow it will come down... For a newbie is the breakout strategy a little bit advance.

Thanks
More...

SH provides good advice, but consider also that when you're buying a breakout you're likely being suckered. Why do you suppose price is breaking out in the first place? Because traders all got a warm, fuzzy feeling all at the same time and decided to buy? Or is it because professional money somewhere decided to orchestrate this breakout, at which occurrence they sell into it, which is why they orchestrated it in the first place? This is why it's often better to buy the retracement after the breakout. This increases the odds that buyers are genuinely interested in this and won't be tossing what they just bought back onto the market at the earliest opportunity.
 
AAAintheBeltway said:
Welcome to ET.

Buying breakouts is a pretty decent strategy in a raging bull market. It can be frustrating when the market is in a range or backing and filling. As you've noticed, people who are already long the stock often use a new high as a place to lock in some profits.

Trying to pick bottoms can also be dangerous, as what looks beaten down often gets beaten down even more.

If it was easy, everyone would make a lot of money, but few do. My advice is whatever you do, be disciplined and don't let any one trade go too far in the red.

Good luck.
More...

And that is what we are in the midst of - A raging bull market.
 
There is another type of entry you can backtest, I call it delayed entry. Wait for the breakout first but don't enter as many are doing exactly that, then at certain percentage say 50% of last pivot low to recent highs to enter on a limit order. I will still use the same exact risk between breakout price to lows minus so much, so I am not going to be risking less, However, the downfalls will always be you miss out on breakouts that won't retrace the 50% and just keep going up and you will of course nail every loss. But if a newer trader, I would go with this delayed enter as it cuts down on over trading, false signals, lack of knowledge as well cause not all breakouts are good to take. Too often from the breakout point to lowest low of area to put your protective stops is beyond a normal swing, price breaks out trapping the inexperienced and Pros force it back down to just beyond these lows to hit the stops (why I don't place stops just below these lows) or form equal lows and then takes off in breakout direction. Also, one thing to keep in mind is "time", say price breakouts of lowest high and won't retrace that 50% but just sits there above this 50%, I use a time rule of so many bars that I can get into a trade or I pull order. I don't like price drift unless selling options. Also, bear in mind timeframe, for ME, this entry works for daily, weekly, monthly bar charts, but I generally only do long term trading on weekly bars cause I am seeking 1-2 years in a trade, much less trading, I buy only stocks that offer dividends and sell short stocks that don't offer dividends.
 
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