Why people buy breakouts
- Thread starter bigbrent701
- Start date
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"The problem is neither of these methods really are suited for the new trader"
you say that tops and bottoms are not suited for the NEW trader, but then you go on to say that...
" At the same time people trying to trade tops and bottoms will tend to be right a higher % of the time but their winners will not be as big and their losers will big bigger."
If this is the case, why would even expeienced traders trade this strategy?
"In a nutshell buying breakouts tends to have a low winning % and the profit potential cannot always be quantified because there are no resistance levels because the trade is making new highs."
It's been said over and over on here that great traders win only, what?..30-40% of the time?.. even Cramer says 40% is pretty good. So what's wrong with a strategy that losses more if the winners are bigger in $ value?. You say that the profit potential cannot be quantified, I would disagree there. If you know where your stop is, then just times that by 3 to get a 1:3 risk reward ratio.
That seems to be very true on really "steep" trends where the breakout fails.
two charts show this:
rcl
An inside vertical bar breakout in the direction of the longer term trend is the highest probability trade. Susequent pullbacks inside the inside vertical bar are excellent low risk trades as well, the longer the time frame, the higher the expectency of follow through.
well i trade mostly otc/pink so its not based on a per/share basis....
When backtested, Break-outs are a high probability win strategy....if they are coupled with some reasonable exits as breakouts tend to retrace much of their initial gains. Bottom-fishing or Top-hunting are completely DIFFERENT strategies with low winning percentage rates, but high average win amount. These strats actually fail a lot because the entry is usually just below a recent high or above a recent low. However, these recent highs and recent lows are always subject to a "break-out" and can mean very rapid loses if stops are not vigorously applied.
A breakout strategy usually employes stop orders for entry whereas bottom-fishing/top-hunting would likely use limit or market orders depending on the exact point of entry. Bottom-fishing and top-hunting always depends on an FBO or "false break out" which can sometimes occur a bit above the recent highs or below the recent lows. Once break-out participants notice the FBO, they either exit their position or reverse it (the smart ones do this). Double or triple tops and bottoms are perfect examples of FBO's.
A breakout strategy usually employes stop orders for entry whereas bottom-fishing/top-hunting would likely use limit or market orders depending on the exact point of entry. Bottom-fishing and top-hunting always depends on an FBO or "false break out" which can sometimes occur a bit above the recent highs or below the recent lows. Once break-out participants notice the FBO, they either exit their position or reverse it (the smart ones do this). Double or triple tops and bottoms are perfect examples of FBO's.
What would you say has the highest win strategy if not break outs?
These discussions are bullshit.
Seriously.
If a trader has consistently BOUGHT the market since 2003, whether on breakouts, fib retracements, off MA's, off pivots, off Jack or off the stars, he's made money. If a trader has looked for short opportunities using the same criteria that's worked on longs, he's been toast.
In other words if a trader has held a bullish bias over the past 4 years EVERY method has worked. Conversely for sellers nothing has consistently worked.
To make money the past 4 years and in the 90's hasn't been a matter of technique but of how bullish you are.
Of course when the market rolls over we'll hear about some really neat "back tested" short strategies.
S&P futures started in 1982. If there was a sure fire 100% a year "system" we'd have seen a guy take 10k in 1982 and run it into 160 billion by 2006. Given the 10-1 leverage of futures, a trader only needs extract 10% of movement per year to hit 100%. Yet NO ONE has ever pulled it off over a prolonged sample.
In answer to the question posed by the thread: Most buyers on new highs are either a. short covering stops or b. "Turtle" type trend followers.
Seriously.
If a trader has consistently BOUGHT the market since 2003, whether on breakouts, fib retracements, off MA's, off pivots, off Jack or off the stars, he's made money. If a trader has looked for short opportunities using the same criteria that's worked on longs, he's been toast.
In other words if a trader has held a bullish bias over the past 4 years EVERY method has worked. Conversely for sellers nothing has consistently worked.
To make money the past 4 years and in the 90's hasn't been a matter of technique but of how bullish you are.
Of course when the market rolls over we'll hear about some really neat "back tested" short strategies.
S&P futures started in 1982. If there was a sure fire 100% a year "system" we'd have seen a guy take 10k in 1982 and run it into 160 billion by 2006. Given the 10-1 leverage of futures, a trader only needs extract 10% of movement per year to hit 100%. Yet NO ONE has ever pulled it off over a prolonged sample.
In answer to the question posed by the thread: Most buyers on new highs are either a. short covering stops or b. "Turtle" type trend followers.
CM seeing that this statement is coming from someone that is not consistently profitable but thinks hes ready to manage his 200k trust fund I take everything you say with a grain of salt.
I said nothing about a low winning % being a bad strategy, i said nothing of this sort. What i did want to emphasize was that a new trader will tend to violate their stop much more than a seasoned trader.
The difference between a new trader and a seasoned trader using this method is that the seasoned trader knows to stick to their game plan and can better differentiate from the top/bottom and when its going to break out from this point.
If there is anything else i need to clarify about this method then please just ask.