Types of Breakouts?

[Salty Gibbon]

I usually trade pretty well after a full English breakout

 

[Skimbleshanks]

The essence of your post suggests that it is wiser in most cases to "Trade Against" breakouts.

Definitely not. My point is that you start by learning to trade one type of 'breakout'. That means in both directions - when it goes right, and when it fails. So you make money either way because you are flexible and are trading what you see, not what you think will happen.

 

[Skimbleshanks]

Skimbleshanks,
Surely these three examples you show on your chart cannot be breakouts.
They are quite the opposite. They are false moves in the opposite direction
to the trend, which in this chart you show above , is downwards,
- because of weakness in the background,
which appears not to have been resolved, hence the gap down to start with,
followed by what is patently a droopy market, losing ground all the time,
with alternating periods of tentative support and half hearted upward spiking,
inexorably leading to lower prices, without a floor in sight ! Sorry. Not knocking
you either, but is there some bullish clue we are all missing ?

You may not have realised, but this board/thread is for beginners and that's why it's called First Steps. The thread starter is asking about breakouts and appears to be using textbook descriptions of breakouts (I deduce this by his adding the word 'continuation' in front of triangles and wedges).

Therefore my chart/answer was pitched to beginners on how 'classic' breakouts (as promoted in books and on courses) can and do fail. Filling the gap, 30 min breakouts, and triangle breakouts are probably the three most popular ones, and so Thursday was a prime example of all three failing.

You and I may know why they were all guaranteed to fail, but I would suggest that that is beyond beginners at this stage in their trading journey.

 

[SOCRATES]

Alan XT,

Please understand that I am not knocking you either, but you are missing the point altogether as well.

A breakout occurs after a period of congestion has formed interrupting the progress of a move.

This move was progressing in a direction before its progress was interrupted by a period of congestion.

A breakout occurs by creating a departure (a freeing from) out of the period of congestion and into a new series of price schedules that are rapidly revised because the use of time is crucial., thus hurrying the price along in the original direction of the move, (that in fact is the current trend) until exhaustion or otherwise.

Breakouts do not occur in the opposite direction to the move / trend, they occur in harmony with the trend, in contradistinction to reversals that do the opposite. Conditions causing breakouts to occur are the opposite to the conditions required for reversals to develop.

 

[chump]

Allan,
Save yourself the trouble and buy or borrow from your library this book if you want stats.

http://www.amazon.co.uk/exec/obidos...1295256/toc/ref=br_dp_toc/026-5789363-7974847

Alternatively Murphy on tech analysis is also recommended reading..then when you have read them go back and read what skim posted again..if you want to trade breakouts then you need to be able to read them within the context they are being formed..

Cheers

 

[BBB]

I must say, I'm firmly in Soc's camp on this one. Insiders replenishing their inventory is NOT a 'failed' breakout.

Who said these were failures anyway? The only reason a breakout 'fails' is because the trader failed to manage his trade properly - probably in the wrong time frame as most invariable are.

Sorry if this sounds counter productive, but identifying a pullback as a breakout for the benefit of 'beginners' aint going to help those beginners much. As Soc stated, breakouts don't happen in ESTABLISHED trends. Beginners should know the difference between an established trend and consolidation. Its on page 2 of those books we all like to slate! 😉

 

[SOCRATES]

I must say, I'm firmly in Soc's camp on this one. Insiders replenishing their inventory is NOT a 'failed' breakout.

Who said these were failures anyway? The only reason a breakout 'fails' is because the trader failed to manage his trade properly - probably in the wrong time frame as most invariable are.

Sorry if this sounds counter productive, but identifying a pullback as a breakout for the benefit of 'beginners' aint going to help those beginners much. As Soc stated, breakouts don't happen in ESTABLISHED trends. Beginners should know the difference between an established trend and consolidation. Its on page 2 of those books we all like to slate! 😉

BBB - quite right !

Beginners must be started off on the right foot, not the wrong one.
A breakout may fail either if there is no response to it or if it leads again into an area of previous congestion leading to a repetition of the problem.
This requires observation, which is radically different to either seeing or looking.

 

[a320]

I think Skim's post is excellent for anyone new to the game.
😎

CJ

 

[SOCRATES]

You may not have realised, but this board/thread is for beginners and that's why it's called First Steps. The thread starter is asking about breakouts and appears to be using textbook descriptions of breakouts (I deduce this by his adding the word 'continuation' in front of triangles and wedges).

Therefore my chart/answer was pitched to beginners on how 'classic' breakouts (as promoted in books and on courses) can and do fail. Filling the gap, 30 min breakouts, and triangle breakouts are probably the three most popular ones, and so Thursday was a prime example of all three failing.

You and I may know why they were all guaranteed to fail, but I would suggest that that is beyond beginners at this stage in their trading journey.

Skimbleshanks,

if you know as you say you know, this confers upon you the weight of knowledge, which carries with it responsibility, particularly with regard to beginners.

It may or may not occur to all of you that a lot of books only fit as doorstops are written and
promoted about trading, many of them back to front, and others upside down even.

Therefore texttbooks on this subject annot be considered to be bibles. Indeed many of them are comics, and it would be funny,were it no so serious.

Let us go back to your second paragraph above, and to the chart:~
I say, as the result of many years of experience and as a consequence of
very extensive, very detailed, very persistent and very well observed and noted
study of this subject:~

A gap can only be permanently filled when the trend that caused it in the first place has reversed.

When a reversal is in force the bars that follow the gap, and proceed to close it , close at or near the tops, indicating strength.

In this chart it will be seen that prices will have moved towards the gap, but it will be observed,
as soon as the prices begin to cross the gap, the closings change in character.

It will be observed that the closings are in the middle or lower because what is shown is a weak market, leading to even lower prices, as this weakness takes hold, so it falls away again and again, with intermittent, and it will be observed, ineffectual support.

This is not a strong market nor is it a market that has solved its weakness either temporarily or otherwise.

Therefore the breakouts indicated are not breakouts at all, but feints, to trap the unwary to believe that prices may go up when in reality the opposite is developing, as the trend matures.

Filling the gaps, 30 minute breakouts and triange breakouts I agree with you are probably the ones that appear to be most popular, and that is because their occurence is common, and their repeated and insistent incorrect explanations in textbooks (written often for the benefit of
the writer and to the detriment of the reader) do a lot of damage.

I remember being a child and having a comic, and in this comic there was a story about an alligator and a tortoise. The alligator said to the tortoise "My mother says, if it's in a book, it's true". I showed this to my nanny, and then to my mother, and they both agreed this was not necessarily the case. It took me, as a child, more than six months to try to work out why,
to get to grips with the concept that not everything printed or uttered is provable fact, whether intentional or not, please.

 

[Skimbleshanks]

You have, yet again, got the wrong end of the stick. I disagree with virtually everything written in so-called trading textbooks. If you took the time to read my post, you will see that I am disagreeing with what is written in books and taught on courses when it comes to breakouts, and am illustrating that on the charts I posted.

I trade from a position of knowledge of the markets, not from a position of believing the utter rubbish written in most trading books.

 

[TheBramble]

A breakout may fail either if there is no response to it or if it leads again into an area of previous congestion leading to a repetition of the problem.

A breakout doesn't 'fail' or 'succeed'. It just is - by simple virtue of the fact that it already exists!

And your assertion that it "may fail either if there is no response to it " has no meaning.

What would be a response to any market move? A continuation? A reversal? A sideways movement? They're all 'responses' if you wish to call them that.

And as for "into an area of previous congestion leading to a repetition of the problem" what 'problem' exactly is it you're referring to? Congestion is congestion - not a problem.

 

[AllanXT]

Definitely not. My point is that you start by learning to trade one type of 'breakout'. That means in both directions - when it goes right, and when it fails. So you make money either way because you are flexible and are trading what you see, not what you think will happen.

Well, first of all, I would like to thank you for the amount of time you are spending on this thread. I feel like I did the right thing starting this thread and I am learning alot from you and your great posts.

Now, you are saying I must be able to trade breakouts in both directions. You are also saying I should trade what I see (Price Action with no indicators) and not what I think will happen (Probability, Odds, Expectancy). So in terms of style of trading, you are suggesting that I use a "what you see" or "price action" style of trading? Can I conclude that you are against a "probability, or odds" style of trading?

And thanks again for adding so much to this thread. This is great and much more than I expected to get out of this.

Allan

 

[TheBramble]

not everything printed or uttered is provable fact, whether intentional or not, please.

Including this, one presumes?

 

[BBB]

I understand the issue to be not whether 'the book' is right, but calling a 'corrective' move a breakout.

Sorry Skim, but I think it's you that has the wrong end of the stick (or should that be bar?). Socrates defined the action of the chart - what happens and why the counter moves dont go that far, and also the strength of price based on their form. Stuff you've also mentioned in the past. If we understand this post, then we can understand that these are not breakouts. A correction and a breakout are 2 very different phenomena.

Your intent to educate beginners is very admirable. However, I think the point is that if you claim to...

'trade from a position of knowledge of the markets, not from a position of believing the utter rubbish written in most trading books.'


...then we would expect you to be able to define the difference between a breakout and a counter trend move. Imagine how much beginners money would be lost if they jumped on every counter trend move hoping it to be a breakout! ouch.

Im all for difference of opinion. We all see different things when we look at charts. Thats what makes the markets go round, but if you want to help others, please think before you type (Im as guilty as anyone!!) - I know you know better!!!

 

[AllanXT]

System Trading

Alan XT,
A breakout occurs after a period of congestion has formed interrupting the progress of a move.

Breakouts do not occur in the opposite direction to the move / trend, they occur in harmony with the trend, in contradistinction to reversals that do the opposite. Conditions causing breakouts to occur are the opposite to the conditions required for reversals to develop.

Thank you Soc for your contributions to this thread as well. Your point seems to be that if I used "trend direction" as a filter then I would not have traded any of those breakouts on the chart by Skim. Additionally, I could use the ADX as a filter for determining periods of congestion (do not take breakout trade unless ADX is below a certain value). Am I on the right track?

thanks,

Allan

 

[TheBramble]

So in terms of style of trading, you are suggesting that I use a "what you see" or "price action" style of trading? Can I conclude that you are against a "probability, or odds" style of trading?

Allan, as there are fundamental and technical analysts, within the latter category there are (broadly) the indicators 'no indicators' types. In fact, if you haven't already visited the 'no indicators' thread, I do urge you to have a look. Fascinating and very deep stuff being discussed.

I don't think anyone is suggesting you adopt any specific style or approach - more of a 'heads up' for things to consider what's best suited to you and your trading style.

I think that's what you're getting.

 

[AllanXT]

I must say, I'm firmly in Soc's camp on this one. Insiders replenishing their inventory is NOT a 'failed' breakout.

Who said these were failures anyway? The only reason a breakout 'fails' is because the trader failed to manage his trade properly - probably in the wrong time frame as most invariable are.

Sorry if this sounds counter productive, but identifying a pullback as a breakout for the benefit of 'beginners' aint going to help those beginners much. As Soc stated, breakouts don't happen in ESTABLISHED trends. Beginners should know the difference between an established trend and consolidation. Its on page 2 of those books we all like to slate! 😉

Thank you for your post. Could you elaborate on:

1. Replenishing their inventory
2. Probably in the wrong time frame
3. breakouts don't happen in ESTABLISHED trends


thanks,

Allan

 

[BBB]

I think this may help:

Lets call a breakout a move from a sideways market that results in a new trend long enough in duration for a profitable trade - regardless of our timeframe.

Personally, I dont think it matters whether it's from support, triangles, pink oblongs, or a breakout from where the sun don't shine. The important fact is that there is indecision, now there isnt. OR to put it another way, 1st the shorter time frames were in control (market makers, locals, scalpers whoever), now the longer term players (public, institution, etc) are in control.


It aint rocket science kids, so dont try and make it that way - thats what analysts do to justify their salary!

 

[AllanXT]

Good Book

Allan,
Save yourself the trouble and buy or borrow from your library this book if you want stats.

http://www.amazon.co.uk/exec/obidos...1295256/toc/ref=br_dp_toc/026-5789363-7974847

Alternatively Murphy on tech analysis is also recommended reading..then when you have read them go back and read what skim posted again..if you want to trade breakouts then you need to be able to read them within the context they are being formed..

Cheers

Thank you for suggesting thiese books. I have the murphy books but I have not read them yet. I had never heard of the Bulkowski book only the Katz book. I have ordered the Bulkowski book. Thank you again.

Allan

 

[SOCRATES]

Bramble,
This is a thread for beginners. Beginners must not and can not be overwhelmed with knowledge for which they are not ready. They must be given the information they demonstrate that they are able to grasp without difficulty, to help them. This sets them apart from the advanced and the very advanced.
Further explanations in detail are only given to the very advanced who, in addition, earn the right to higher understanding through mentoring earned on merit and on conduct, according to ability.
Bramble, that is all.