How do you trade breakouts?

[coolTrader]

For those who trade breakouts, how do you trade breakouts successfully?

Do you just put a limit order so when it hits breaks out you are in?
Do you wait for it to breakout and pull back and confirm breakout?

If you have tried various methods on average which is the most successful

Lets here your opinion?

 

[rog1111]

I think that all b/o methods will be equally successful, or not. If the instrument traded is going through a phase of making new highs/lows, and staying there ie breaking out, then you should make money if you are going with the trend, which is obvious really. Try placing simple stop orders 1 point/tick beyond the high/low, and don't worry about complex entry criteria. You need to do your research and select your instrument carefully. There are bound to be losers, very hard to eliminate if you are going to use this strategy, nevertheless there are plenty of opportunities if you stick with it.

GL

rog1111

For those who trade breakouts, how do you trade breakouts successfully?

Do you just put a limit order so when it hits breaks out you are in?
Do you wait for it to breakout and pull back and confirm breakout?

If you have tried various methods on average which is the most successful

Lets here your opinion?

 

[pipmarshal]

Breakout Strategy

The market condition whether it is trending or range bound would also need to be factored while trading a break of supports/resistances. If suppose the market is trending then the possibility of clean break is high whereas in a ranging market there is a high probability of false breaks atleast on a few occasions.

Moreover, the more a support/resistance is tested the stronger it becomes due to heavy buying/selling near those points. But if it breaks then a slew of stops would get triggered below the support or above the resistance and the action would quickly move away. In such a scenario, the rate might not retrace to test that point quickly.

One more point to be considered is whether some news item acted as a catalyst in triggering the break.

So formulating a trading strategy based support/resistances needs a good understanding of the pair's price action. This naturally would come with experience and more time spent on doing your homework.

Have a nice 100 pips day.

PM

 

[TWI]

Do you just put a limit order so when it hits breaks out you are in?
Do you wait for it to breakout and pull back and confirm breakout?

It is necessary to vary this dependent on market. If you just go to market when the breakout level is taken out then you have to be sure that your system can sustain the resultant slippage which over time will destroy a backtest results based on getting in at the breakout price. Often, in liquid markets it is better to await the breakout and then place a stop limit allowing you the max slippage which the system can comfortably sustain. In the latter case you will however miss some of the explosive moves. Each time I go live with a breakout system I start with small volume and test various methods until I find what is most cost effective for that particular model. After I am comfortable with the best method I then increase the volume slowly to see how much it can sustain. Once you have something mechanical and have the discipline to stick to it success or failure really does come down to good execution.

 

[Chicken Curry]

Take a look at this

http://www.trade2win.com/knowledge/articles/general_articles/15-min-break-out-strategy/

I really like this video

 

[frugi]

Excellent vid indeed.

If the breakout is from a consolidation pattern then you could position at the other end and take half off at the potential breakout level. If a breakout follows you are already poised to profit from it. By positioning at the other end you up the R:R considerably, as you get a range trade and a potential BO trade, all for the price of a similar sized stop to the one you probably need for playing solely the BO. You also avoid the slippage issue if the BO is a belter. It is quite likely that the smart money will get in quietly under cover of the opposite end of the consolidation, so watch the tape to see if you can spot them (easier said than done I know).

Often an initial break is created to clear out any obviously placed stops just outside the consolidation zone and test what sort of supply / demand there might be at this new level. If only a dribble of fresh buying/selling emerges, then there should be a fall back into the consolidation zone (again taking out the tight stops of those few who did just take the BO bait. The bait can be made more enticing by, say, stacking big orders a tick or two away in the DOM to make it look like the new price is supported but pulling them before anyone tries to hit them).

But if the price then breaks out a second time having shrugged off this stop baggage on both sides of the boundary, it is usually less risky joining in as the buying/selling should be genuine.

In my ludicrously idealised example we would have taken half off at the top of the consolidation then maybe moved stop on the rest to b/e and just sat back and watched the BO games, already in profit.

Joe Ross' principle of Second Time Through is quite similar I think

http://www.trading-naked.com/library/JoeRossTradingManual_C15_116_120.pdf

 

[DanBlystone]

The breakout trade used to work great in the mini S&P about 5 years ago, but I find it is not as easy to find a textbook breakout trade anymore.

__________________
Dan
www.TradersLog.com

 

[frugi]

A nice example of the breakout strategy mentioned earlier.

A well established down sloping channel with ample opportunity to get long near the bottom, while Tick bounced around the zero line.

An initial false BO with what looks like a program trade (?) temporarily pushing it back into the channel, followed by the real deal. Note the (well okay quite slight) volume difference between the real and fake ones too.