Does anyone have faith in breakouts anymore?

mathsfreak

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I did a course that was produced in 2003 that taught breakout trading. It claimed a 70% strike rate but from looking at the last 5 months of data that just isnt the case (any more.)
Anyone got any insights on this?
 
Without knowing the contents of your course, and I don’t want to, I can’t comment on the apparent discrepancy between your expectations of 70% ‘strike rate’ and your current experiences. The breakout is a time-tested method and works well in all markets. But it is just a method. If you don’t have the system to go with it, you’re wasting your time.

Watching the development of the necessary precursors to a valid breakout and waiting for the apparent breakout are all empirically demonstrable and have clear criteria for their recognition. Trading the breakout basically comes in three flavours, all of which are equally simple to employ and manage. It is the ability to determine within any of these three primary flavours of breakout, when you are sitting on a false breakout and what to do about it. You don’t always dump the position on a false breakout as there are other factors which are instrument specific and give you more clues as to position development and adjustment. It is these specific instrument nuances which I suspect were not taught to you on your course and can only be picked up through exposure and experience.

I would treat your course as a primer to trading breakouts rather than a guarantee to give you a 70% ‘strike rate’. Breakouts are bread & butter trades and could form the staple of your trading diet. You would be unwise in my view to ditch them just because they haven’t lived up to the advertiser’s promises.
 
I did a course that was produced in 2003 that taught breakout trading. It claimed a 70% strike rate but from looking at the last 5 months of data that just isnt the case (any more.)
Anyone got any insights on this?

5 months is a small blip as far as mechanical trading systems are concerned. When I started trading I back tested a breakout strategy on the S&P500 with about 20 years of data. There was one period between equity peaks that lasted over 500 days! That means trading every single day for almost 2 years just to get back to where you were! This is why I abandoned it. You will probably find periods like this in any mechanical strategy you try and this is the reason why people generally give up on one and quickly move on to the next. They are driven by the belief that there is a holy grail and continue looking for it.
 
Thanks. I suppose I need to look into it a bit more as it doesnt seem as simple as thecourse made out. So are you suggesting using fundamental analysis as well as technical? Do you know of any good resources where I could find out a bit more about this-specifically how to spote a false breakout?
 
They are driven by the belief that there is a holy grail and continue looking for it.

But if people do make a living out of it , is it because they have found a 'psuedo' holy grail i.e. a system better than most, or is it because they just stick with a system that has been good in the past and see themselves through the rough times?
Do you think that a systems performance depends on market conditions and that sometimes it is better to change for this reason?
 
Watching the development of the necessary precursors to a valid breakout and waiting for the apparent breakout are all empirically demonstrable and have clear criteria for their recognition.


Any advice on where I can learn to do this?
 
I believe it helps to think of who is winning and losing. Someone wants it to break out and make money on the move that stops create. Or new buying as well perhaps. Others try to hold the market below the breakout if it´s a resistance. Like a battle. Just my understanding so far
 
I did a course that was produced in 2003 that taught breakout trading. It claimed a 70% strike rate but from looking at the last 5 months of data that just isnt the case (any more.)
Anyone got any insights on this?

Hi mathsfreak,

I have always traded using a form of breakout and it has always worked for me.

Feel free to drop me an email or reply to this post if you have any questions.


Thanks

Damian
 
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