Keys to the PROFITABLE TRADING III. - Breakouts I.
Hey Guys, today I want to start writing about breakouts.
As I have read many articles these days it almost looks like the breakouts shouldn't be traded at all. Many traders even despise breakouts because one is entering trades TOO late. But the truth is there is many situation where the strong BO gives nice confirmation for a trade.
In this part I want to give you some points how the right breakouts should look like.
The Price Action before entry bar:
1. Bars should create some form of triangle. It means the market should become narrower.
2. The momentum of the bars should be low. I will write about measuring the momentum in some other article. But easily said the range of the bars should be also narrower.
-> these 2 conditions ensure that the market is waiting for something bigger. It often means some form of accumulation or distribution.
3. There should be some free area for BO.
The Entry Bar:
1. The BO bar should be a trend bar - if long - open near low and close near high and vice versa .
-> it means that the buyers was much more active all the day
-> they did not let the price fall under the open and even the high price of the day is not too high to trade there before close
2. The range of the bar should be above average.
- there is no exact number how much above average
- you also do not have to count it, the BO bar have to be easily visible
3. The close of the bar should be out of the triangle pattern.
- also no exact number, you have to see it
4. The BO bar have to be easily visible.
- maybe the most subjective condition but also the most important
- IF YOU HAVE TO LOOK FOR THE PATTERN, IT IS NOT THE RIGHT ONE!
The Price Action after the BO bar (after you enter the trade and the idea works):
1. There should not be quick reverse bar.
- it is quite clear, but it has to be written because of the other condition...
2. There can be more small reverse bars, pins, dojis etc.
- many traders make a mistake they are moving the stoploss bar to breakeven very quickly
- after the BO move there can be some small exhaustion, not many traders want to trade for this price YET and some can even exit if they enter before the BO
- it can happen and you have to wait and just be aware of rapid reverse (it means big counter move in short time)
3. If the price creates some swing and then retest it the price should go through this swing.
(or not reverse quickly at least)
- after the BO one is waiting for creatin some form of trend and the main character of trend is that the price is creating swing which is also breaking
-> if the price can't break the swing, it shows us that the BO is not as strong as we have waited
OK. It was some basic conditions for trading breakouts successfully. Next time I will go through the trading situations on this chart and will explain these conditions more practically.
If you have ANY questions about breakouts, write them down below please.
Paul
As I have read many articles these days it almost looks like the breakouts shouldn't be traded at all. Many traders even despise breakouts because one is entering trades TOO late. But the truth is there is many situation where the strong BO gives nice confirmation for a trade.
In this part I want to give you some points how the right breakouts should look like.
The Price Action before entry bar:
1. Bars should create some form of triangle. It means the market should become narrower.
2. The momentum of the bars should be low. I will write about measuring the momentum in some other article. But easily said the range of the bars should be also narrower.
-> these 2 conditions ensure that the market is waiting for something bigger. It often means some form of accumulation or distribution.
3. There should be some free area for BO.
The Entry Bar:
1. The BO bar should be a trend bar - if long - open near low and close near high and vice versa .
-> it means that the buyers was much more active all the day
-> they did not let the price fall under the open and even the high price of the day is not too high to trade there before close
2. The range of the bar should be above average.
- there is no exact number how much above average
- you also do not have to count it, the BO bar have to be easily visible
3. The close of the bar should be out of the triangle pattern.
- also no exact number, you have to see it
4. The BO bar have to be easily visible.
- maybe the most subjective condition but also the most important
- IF YOU HAVE TO LOOK FOR THE PATTERN, IT IS NOT THE RIGHT ONE!
The Price Action after the BO bar (after you enter the trade and the idea works):
1. There should not be quick reverse bar.
- it is quite clear, but it has to be written because of the other condition...
2. There can be more small reverse bars, pins, dojis etc.
- many traders make a mistake they are moving the stoploss bar to breakeven very quickly
- after the BO move there can be some small exhaustion, not many traders want to trade for this price YET and some can even exit if they enter before the BO
- it can happen and you have to wait and just be aware of rapid reverse (it means big counter move in short time)
3. If the price creates some swing and then retest it the price should go through this swing.
(or not reverse quickly at least)
- after the BO one is waiting for creatin some form of trend and the main character of trend is that the price is creating swing which is also breaking
-> if the price can't break the swing, it shows us that the BO is not as strong as we have waited
OK. It was some basic conditions for trading breakouts successfully. Next time I will go through the trading situations on this chart and will explain these conditions more practically.
If you have ANY questions about breakouts, write them down below please.
Paul
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