Breakout Trading - Conviction vs Risk

RichB Trader

2 0
Hello all!

I am new to Trade 2 Win, so firstly Hi! Looking forward to being involved in the community.

I have been breakout trading with decent success, some winners and some losers but overall making decent returns. I have found a good balance between discretionary and non discretionary trading as well as applying strict risk management. Having read at least 10 off the main books, watched webinars & Youtube videos along with a year on demo accounts, I am nearly ready to go to a Live account.

I am doing pretty well at finding good trade setups, considering price action and volume mainly but with a glance at indicators and some fundamental/news awareness to. Although my Win Ratio is a little lower than I would like. The issue I have is getting good entries. Lets say I find a typical ascending triangle pattern, trading with the trend etc. etc. In my experience one of 3 things happen.

  1. It breaks out by 0.5% - 1% on day 1, then reverses back below the trigger. This one is easy, don’t trade it!
  2. It breaks out by the same 0.5% - 1%, day 2 it ranges around the trigger. Great I can get a good entry on this with conviction of it holding above the trigger for 2 days.
  3. It breaks out by several % (above 4-5%), these I miss completely, some come back down to the trigger on a pullback (which I can trade if I believe the trend is still OK), most often it does not and a really good quick trade with large returns is missed.

As mentioned I use a 2 close filter, i.e the price has to remain above my trigger for 2 full days. This has saved me lots of cash in whipsaws from #1. However this means I miss opportunities from #3. Of course I could put an entry in above the trigger at 2-3% to catch those big moves, but then you are a long way from market structure with a poor risk:reward ratio should it turn the other way.

I hear of other using time bound (like me), % bound, combination of the 2, certain candles on breakout or only trading pull backs etc. etc. So the question is, what filters/rules do you use for your breakout trade entries to keep the conviction high, but not miss too many moves?