Breakout Blues

From the comments I received recently, I am afraid people are treating the method as a breakout trading method. Most of the traders are getting caught on the wrong foot trying to trade breakouts. This could be due to the higher percentage of breakout trades in my analysis due to the higher market volatility.

Breakout trades are least priority trades in my scheme. I assume the market is in a range all the time and the preferred trades are fading the range extremes. Range is a series of “Failure to break” and “Breakout Failures” of range extremes. These three trade setups are my bread and butter methods.

People find breakouts attractive because it is very easy to identify and it is extremely rewarding if they get it right. Predicting a successful breakout is one of the hardest tasks a trader can do. In an established range there could be multiple failures before one succeeds. Most of the breakouts do fail and it is better to wait for the breakout to fail or give a breakout pullback rather than making a direct entry.

I do attempt direct breaks. These trades are called PressurePlays. We must be well aware of the context in which the BO is taking place and ensure a higher probability of success. Be aware that trying to predict a BO is extremely risky and better to stay out if we are not confident. Then it is better to go for a Breakout Pullback.

What if the Market runs without a pullback?  Then let it go. Markets are for ever.

Further traders believe trends start when price break out of a range. I do not subscribe to this view. I think a trend always start from a range extreme and run further breaking the other extreme of the range. I prefer to enter at the beginning as against the middle