Best Thread Phil Newton's Range Break Out strategy

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Newtron Bomb

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Hi Folks,

Its been a long time since I posted anything useful on this forum so I thought I would start with an update for the Knowledge Lab Article, "15 Minute Break-out Strategy".

Firstly there are two articles for this listed on it the 60 min version and the other is the 15 min version of teh break out... lets face facts they are both break outs regardless of the time frame.

The video in the article was made in 2004 and since then I have not really seen a better example highlighting all the reasons why I trade the way I trade on a chart and as a result has not been updated.

The targets for intraday ranges are different in that I use this pattern as a trigger into a larger intraday move. Swing trade targets are still the same as described.

What I will endeavor to do with this thread is prodive examples of how I trade this pattern. I will not be posting real time examples as I have other commitments with my own site but I will hopefully post real time snags take at the time of the set ups.

Range Break Outs form the basis of my core trading. Generally speaking I call most consolidation patterns a range whether it is a triangle in one of its many guise's, a head and shoulder pattern, and so on. The point is to identify a period on the chart when price is contracting which then should lead to a period of expansion.

By keeping it simple and not trying to figure out what the pattern is called I can reduce the thinking time significantly and the actual time involved whilst trading as a pattern develop and progresses through its various stages of development as one pattern develops into another and different (text book) rule sets need to be applied.

What I am therefore interested in is where are the consolidation patterns extreme levels of support and resistance. This way i can treat them all in the same way and not have to worry about what it is called, has it broken a trend line? Is it a genuine break of the pattern? This list of questions can go on and on depending on the pattern and how price action develops.

The two range patterns that I distinguish between are;

Intraday or overnight ranges
Swing or Longer term ranges
The only notable difference between the two set ups is the way I identify a target.

Once the range has been identified I can then think about how best to go about trading it. Generally speaking the move into the range dictate the most likely direction of the break out move, 65% of the time it is a continuation pattern 35% of the time it is a reversal pattern.

With this figure in mind, if the move into the range is up I will be looking for reversals off the low (more on this later) and break outs of the high of the range.

Rules for trading the range once identified.

Trade the first pullback after the break out of the established range.
Stop loss goes past the event that caused me to get into the trade
Targets for intraday trades are based on an average days movement
Targets for swing trading (longer term) ranges are the height of the pattern added to the break out point.
Range consideration

Ideally the overnight range should have developed near the previous days high or low for higher probability trade set ups.
If the overnight range is in the middle of the previous days high low range then this becomes a lower probability set up. (usually price will be consolidating in the bigger picture)
If price is in the middle of a larger range then it is also not the best location to look for a trading opportunity. Waiting for price to be at the range highs or lows and assess for reversals or breaks is the highest probability option.

Intraday example

Looking at a quick example, once the overnight range has been identified and in an "ideal" location I am now waiting for the pattern to "break out" of its consolidation.



Once price has broken out of the range, to avoid getting into a false break out situation, to enter the trade I am looking for the first corrective bar or a "pullback". My current usual routine is to start looking for this pullback on the 89 tick chart. (if you dont have access to tick charts then a 2 or 3 minute chart will work just as well). After this IF the pullback develops but does not trigger the entry order I will then move up to the next time frame as price continues to develop a pullback on the 15 min chart then the 60 min charts.



Now my entry has been identified by the first pullback after the break out the stop loss, also identified by the same pattern, is going past the event that caused me to get into the trade.



The way the I currently manage my trades is to remove the risk on the trade by scaling out a portion of the position. This is a simple formulae.

I trade in multiples of 3 lots, I will look to remove 2/3rds at 50% of the size of the stop loss size. For example, If I have a 30 pip stop loss 50% of the stop loss size is 15 pips, 2/3rds of the position will be removed at +15. The last 1/3rd of the trade remains with its original stop loss level. If this last 1/3rd gets stopped out then I will have overall a break even trade.

2 x +15 = 30 pips
1 x -30 = -30 pips
Profit on overall position = 0 pips
After this I have a risk free trade and my final target is based on an average days movement (discussed previously- see my site)


Swing example

Following the same philosophy, identify the range, wait for price to trade past the range boundaries. wait for price to pullback this creates the entry and stop loss levels. Target is the height of the pattern added to the break out point.

Identify range



Wait for break out of the range to establish entry and stop loss levels



Entry established beyond the pullback. Stop loss goes past the event (pullback high)



Target is the height of the pattern added/deducted to the breakout point



Wait for trade to hit target.



YouTube - Phil Newton's Break out Strategy
 
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rathcoole_exile

Veteren member
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although I usually use Stop Buys/Sells to initiate a trade and then use a pullback to add to positions just as you're initiating your first one.

And to be fair to captain Currency, i have also just this week begun work on incorporating the 3 Ducks system into the Breakout system. Still some way to go, as I'm only forward testing it.
I'd like to say it's because of some deep-seated profound reason that I don't like back-testing, but it's just 'cos I'm a lazy git and can't be arsed ...
 

Newtron Bomb

Experienced member
1,602 86
Range examples for today so

range example for today so far... some have triggered already with entries on the lower time frames















Enjoy
Phil
 
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atrim

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range example for today so far... some have triggered already with entries on the lower time frames



Enjoy
Phil
Hi Phil

I have been watching these ranges this morning as they form. I was watching EUR/USD, GBP/USD, USD/JPY and USD/CHF. I saw a break of the USD/CHF range and now we have a pullback with a doji type entry on the 5M so I have entered a long here on my demo account. I placed my stop outside the range so below 10497. I didn't see any entries on the other pairs I'm watching so maybe I missed something in your explanation. I'll go back and read it all again.

Thanks

Anthony
 

Newtron Bomb

Experienced member
1,602 86
entries for me on those that triggered were based off the 89 tick chart which is quite good on tradestaion a 2-3 min chart will give you a similar effect.

Long on swissy myself but has been stopped out for a small loss
 

Newtron Bomb

Experienced member
1,602 86
Interesting day so far with these ranges... at the start of the day locked like a good potential day with so many things setting up... many false starts and breaks of both sides of the ranges can be seen.

GBPCHF and GBPJPY post news release break outs doing well... GJ stopped out for a break even trade for me. GC still open need it to run a little further before I can start actively managing it, break even trade managed so far.

Took a hit on USDCHF and now broken range lows for short bias which is currently stalling.

Euro break out cam to nothing as well with break even trade.

A real mixed bag of trades so far with complete lack of follow through.

Off for a spot of lunch

Enjoy
Phil
 

atrim

Active member
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I've re entered swissy long because a. I dont like being wrong but will concede I rushed my original entry b. Its only demo money c. I think its going up
 

Newtron Bomb

Experienced member
1,602 86
swissy broken the low of the day now... price is making LH' LL's its going down for now.

Standard BO PB set up now short.

I've re entered swissy long because a. I dont like being wrong but will concede I rushed my original entry b. Its only demo money c. I think its going up
Always have a reason to do something... FACTS. What is price doing? ... it has nothing to do with being right or wrong regardless of live trading or demdo trading... If you cant get it right demo trading then you will make the same errors when you decide to live trade.

ID range
Wait for break
Wait for PB
Stops past the event ie past the pullback not the range

IF none of the events you are looking for develops then you do not have a trade, "I think its going up" isnt for me a good enough reason for a trade

Enjoy
Phil
 
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timsk

Legendary member
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The way the I currently manage my trades is to remove the risk on the trade by scaling out a portion of the position. This is a simple formulae.

I trade in multiples of 3 lots, I will look to remove 2/3rds at 50% of the size of the stop loss size. For example, If I have a 30 pip stop loss 50% of the stop loss size is 15 pips, 2/3rds of the position will be removed at +15. The last 1/3rd of the trade remains with its original stop loss level. If this last 1/3rd gets stopped out then I will have overall a break even trade.

2 x +15 = 30 pips
1 x -30 = -30 pips
Profit on overall position = 0 pips
After this I have a risk free trade and my final target is based on an average days movement
Hi Phil,
I'm interested in your exit strategy, but I'm not quite clear about the 1/3rd of a position that's left running after your initial target is hit and you've banked the first 2/3rds. If - for the sake of argument - the average daily movement is 100 pips, will you automatically close the remaining 1/3rd when this level is hit? In other words, do you ever use price action to determine when to exit a trade or are all your exits target based?
Cheers,
Tim.
 

Newtron Bomb

Experienced member
1,602 86
todays ranges

GM folks





missed the early snag, got this in my live trading room on the lower time frames


 

Newtron Bomb

Experienced member
1,602 86
Hi Phil,
I'm interested in your exit strategy, but I'm not quite clear about the 1/3rd of a position that's left running after your initial target is hit and you've banked the first 2/3rds. If - for the sake of argument - the average daily movement is 100 pips, will you automatically close the remaining 1/3rd when this level is hit? In other words, do you ever use price action to determine when to exit a trade or are all your exits target based?
Cheers,
Tim.
Hi Tim,

I can't give away all my trade secrets in one go :smart:

Generally I like to let the last 1/3rd run as long as possible usually to an average days move. Other options for you are an active trade management style, pattern targets or a measured move.

What we see quite often on single directional move days are that you get no pullbacks on say a 15 min chart to measure a move from so where do you place a target.

My main objective is to capture the main move of the day so at some point I need to know what an average move looks like on the pairs I'm watching.

The thing you need to know about trading is that there is no right or wrong only what works for the individual.

Personally I have further trade management rules in place to capture (at least I attempt to) most of the main move of the day.
 

Newtron Bomb

Experienced member
1,602 86
There were a few other pairs (usdchf & audchf for eg) this morning as well but these were the cleanest looking ranges today
 
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