Trading the breakout...

shadowninja

shadowninja

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Since that discussion was started in someone's journal, let's examine ideas in a new thread.

Topics to discuss (no order of importance):
-spotting the set up
-knowing when it's a whipsaw
-stoploss sizes
-managing the position
-scaling in and scaling out
-targets
-timeframes to use
 
Summary of conversation so far:

pedro01 said:
I brought a fairly expensive training course from Ian Williams which is all about support & resistance and little else.

In a trending market - at the start/middle of the trend - these systems look to work quite well. Towards the end of a trend (on whatever timescale), it seems that the professionals are using people reliant on these systems to offload their holdings. If I have learnt anything - it's not as simple as just support & resistance. Also - in a non-trending market, these concepts don't work well then either.

From what I can see now - just using support & resistance alone is as good as throwing a dart at a chart to figure out which way to go. I may well be wrong but I wont be relying on purely support & resistance from hereon in.
Click to expand...

trader_dante said:
Support and resistance levels work just as well in a non trending market as in a treding one but the concept of s/r is not as simple as it is made out to be. That is to say, one cannot simply buy support and sell resistance and hope to make money.

You have to have a very thorough understanding of how not only the markets work but also how the market participants trade - both the strong and the weak hands. You have to watch how the price moves at support and resistance and be able to see what is happening to be able to use it to trade profitably.

The most successful traders I know are using support and resistance only and they make more money than most of us can easily comprehend.
Click to expand...

yellowlion said:
Essentially, I view everything in terms of support or resistance. Even a pullback entry into a trend is set up by a level I think will support or resist. Confirmations for entry are indicator patterns and most important, the behavior of price at the s/r level.

Dante had what I believe to be an accurate post recently about breakouts with a retest of the s/r level as the preferred entry. I have never been a fan of breakout plays but if one looks viable, this is the method I use.

Without support and resistance, everything else, in my opinion, is chasing price.
Click to expand...

pedro01 said:
Interesting stuff.

In the Ian Williams course - it is very simple - it says to buy when a resistance level is broken & sell when a support level is breached. That's it. It also talks a little on MA crossovers as a sign of a trend reversal. It also tells you to use a trailing stop of a DMA that fit well on prior trends on the same instrument. As this can be 100's of points, you actually need quite a lot of $$$ to try this out if you are only risking 4% of your stake each trade.

It talks about doing this on daily charts only - no time level below that

That is all it teaches & it says you can make a living with this limited knowledge.

Now - with just this method, at the time I was trading it, about 50% of my trades broke through the S/R level & then rolled over and went in completely the opposite direction.

If you are looking at a daily chart with history going back years (which Ian teaches is just as relevant) then there's pretty much support & resistance everywhere.

So - I am not saying that S&R are irrelevant, just that blindly picking an S/R level & waiting for a breakthrough (without a retest) and ignoring volume on daily charts hasn't worked FOR ME in either live trading (admittedly only 4 months) or in the paper trading I did when I abandoned the live trading.

One thing about this course - Ian Williams never actually says he makes a living from this method, if you look at the customer comments no-one says that they have made money long term from this. Also - Ian is always pointing out that those who complain aren't taking responsibility for their own results.

I have followed his WICS posts - once a week he has a rant about the market & twice a week he posts chart analysis videos that stay there for a short period. I download these videos & when Ian says 'what will probably happen next' on a chart - it rarely does what he thinks.

This is why I believe that following S & R without any other knowledge is as good as using a dartboard. Of course - when the next major bull market comes along & everything is going up - both methodologies (dartboard & Ian Williams) will work well.
Click to expand...

trader_dante said:
That is most likely it's failing. Trading S/R is just not that simple.
Click to expand...

GammaJammer said:
That's similar to what I have said a few times (and at least once recently). I however favour trading at least some of the position on the initial break (so at least you're in the move if it just takes off and never looks back) and then scaling in if and when the level is confirmed by the price action.
Click to expand...
 
GammaJammer said:
I think market positioning and context are both hugely important drivers when considering whether or not the risk/rewards stack up to trade a breakout. For me a breakout works best when it causes people pain, as that will fuel more decisive price action than a bunch of people initiating fresh positions imho.

So it has to be a bit of a 'screw you' (note polite-ish phrasing) move.

GJ
Click to expand...

On the subject of breakouts, I think that daily ones have too much risk for me to contemplate, usually, although if (the operative word) they work the rewards can be very gratifying. I prefer the hourly ones and trigger in with a 5' chart.

Jack Schwager says that, in his view, the very best signals are the failed ones. A failed signal quite often signals a strong reversal.

That would, in part, go some way to support TD's pin bar system, where he uses reversals in combination with SR lines.
 
Splitlink said:
A failed signal quite often signals a strong reversal.
Click to expand...

Yes, you need a lot of stops to be triggered from failure to get a decisive breakout. Otherwise you often get what I call a noise break, where the market gradually moves through the level whipsawing between a high and low point near this break price.
 
I think time is the most important determinant of breakout success.

It's normal market behaviour for the market to extend the range calmly throughout a session, rotating back and forth. On a daily chart you might see the current trading range gradually expand with these range extensions or false breakouts.

A true breakout will be characterized by price developing beyond the breakout point for a good period of time. Then the breakout play becomes trading off the low volume area which separates the breakout point from the pullback point.
 
As it happens, I've shorted the SP at 1264, when it touched a BB. It has come back to the hourly SR, which I'm hoping it will break.

Would you think that this was a failed signal, or is it too soon to tell? It's out of hours, of course, and all sorts of things can happen from now on. But I believe that I have a reasonable risk, with a stop at 1266. If it breaks that, there is a good chancethat it could trend up along the BB line, IMO.

Split
 
Splitlink said:
As it happens, I've shorted the SP at 1264, when it touched a BB. It has come back to the hourly SR, which I'm hoping it will break.

Would you think that this was a failed signal, or is it too soon to tell? It's out of hours, of course, and all sorts of things can happen from now on. But I believe that I have a reasonable risk, with a stop at 1266. If it breaks that, there is a good chancethat it could trend up along the BB line, IMO.

Split
Click to expand...

Split,

Could you explain what BB means?

Cheers,
Joey
 
GammaJammer said:
Guessing Bollinger Band but I could be wrong.....
Click to expand...

Sorry, yes, Bollinger Band, it was fairly close to the SR and thought it might reduce my stop loss requirement getting in there. This is a 15' BB, BTW on a 20 ma, 2%.

Don't use it on my say so, I'm often wrong :D
 
You see what happened? Don't look like it failed today! :cry:

That SR is showing support, at present, but, at least, my risk management works! :LOL:
 
You and your shorts, split :)

What about ftse on the 5 min between 10:15 and 11:00 - tight range at key level, false break to the downside, then whammo.

good trading

jon
 
barjon said:
You and your shorts, split :)

What about ftse on the 5 min between 10:15 and 11:00 - tight range at key level, false break to the downside, then whammo.

good trading

jon
Click to expand...

I can sense your beady little eye on me! :D

I was too busy for the FT, today. Thought I might set up something with SP for this afternoon.

This is a good thread, hope I'm not rocking it off course.
 
Well, you can see that I am quite capable of making mistakes and I welcome any comments and criticisms on my trades.

Apart from making trades, not losing much is what it is all about. BBs can be dangerous in a trending market. That's why I kept my stop close. In retrospect, if I had had the stop farther away, I'd still be in the trade but that's hindsight.

You read Jon's post. He knows that I have been a short trader for several weeks.

Good trading

Split
 
GammaJammer said:
I think market positioning and context are both hugely important drivers when considering whether or not the risk/rewards stack up to trade a breakout. For me a breakout works best when it causes people pain, as that will fuel more decisive price action than a bunch of people initiating fresh positions imho.
Click to expand...
There are breakouts and there are breakouts. I don't think it's possible - and certainly not wise - to lump all breakouts together under one roof. A breakout above key resistance isn't (necessarily) the same as a breakout above the high of the previous candle of whatever timeframe you're trading. I use a 15 min' chart (among others) and part of my risk management strategy is that if I'm short, I'll close the trade if price breaches the high of the opening 15 min' candle. The rationale is that lots of peeps trade this move and even if it 'fails', my stop will, likely as not, be hit. So I may as well get out with a small loss rather than take the full hit - if that makes sense!
Tim.
 
shadowninja said:
Since that discussion was started in someone's journal, let's examine ideas in a new thread.

Topics to discuss (no order of importance):
-spotting the set up
-knowing when it's a whipsaw
-stoploss sizes
-managing the position
-scaling in and scaling out
-targets
-timeframes to use
Click to expand...


Break-outs? Have you traded BOs, SN? Would you recommend BOs as a one market strategy?
 
shadowninja said:
Since that discussion was started in someone's journal, let's examine ideas in a new thread.

Topics to discuss (no order of importance):
-spotting the set up
-knowing when it's a whipsaw
-stoploss sizes
-managing the position
-scaling in and scaling out
-targets
-timeframes to use
Click to expand...


What if i said to you there is no such thing as a BO? What if i said dont hinge your decision on one price, but, what is happening about that price?


BOs are something, not everything, they are less, but there is more.....do you understand?

I'm not taking the p1ss.
 
TBH it's not something I've had much success in but wanted to learn from those who have. :)
 
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