# Breakout and pullback technical setup



## albi000 (22 February 2008)

Scan for the breakout to new highs, wait for the pullback then enter on strength (Volume is always good to see as well) with stop loss at the pullback low and/or support.

The following are not closing prices for last days bar


----------



## Sean K (22 February 2008)

*Re: Breakout Pullback*

So, albi, what's the point of the thread?

Are you going to continue on identifying these formations for us?

Are you just analysing this particular trade?

Or, is this about the stocks mentioned?

Cheers,
kennas


----------



## albi000 (22 February 2008)

*Re: Breakout Pullback*

Sorry Kennas ... always in a rush.

I will be posting, and hopefully others will too, charts that fit this criteria to monitor its worth as a trading setup.  

It is extremely important to have solid position management which may be looked, specifically risk and reward ratios.  The main focus will be on the setup.

A lot of traders look for the break, this setup will look for the break, then pull back for a safer entry when signs of strength return.

Enjoy,
Albi


----------



## JTLP (22 February 2008)

*Re: Breakout Pullback*

Big Fan of this idea ALBI.

Would be another good learning curve (amongst the others on ASF)


----------



## chops_a_must (22 February 2008)

*Re: Breakout Pullback*

The problem then becomes, "what sign of strength do you use to enter on?" 

With a lot of breakouts, they wont return to the breakout point, they'll keep going. Others will retest and then move on again, offering a safe entry point, and others will come back straight through the breakout point and reverse.

With QGC there, you have no idea whether or not that gap will fill, so how do you play it? And has the gap itself taken most of the energy out of what would have been a very profitable run? So you may get a situation where the high soon after the gap may not be breached again, and it doesn't do too much after that, ala ORI and RIO.


----------



## Porper (22 February 2008)

*Re: Breakout Pullback*



albi000 said:


> Sorry Kennas ... always in a rush.
> 
> I will be posting, and hopefully others will too, charts that fit this criteria to monitor its worth as a trading setup.
> 
> ...




Looks very much like a Gann reversal set up?

Very tight stops are needed for this type of set up and let the winners run is essential because you have a lot of loosing trades.Buying on a outside or key reversal day etc would presumably be the trigger?

Not a bad idea though.


----------



## nomore4s (22 February 2008)

Could use this sort of set up to get your entries and stops, will probably get stopped out a bit though, but it will give you tight entries.
IMO you would probably be better off taking a half position on the breakout and the other half on the pullback, the good breakouts will run and you'll miss too much of the meat of the trade on the pullback.

Enter on a break of the previous days high, but only if the following days from the low (stop point) have higher highs and lows. I would also want to see some positive signs in the swing low bar (high close and reducing volume on the pullback)


----------



## albi000 (23 February 2008)

nomore4s said:


> Could use this sort of set up to get your entries and stops, will probably get stopped out a bit though, but it will give you tight entries.
> IMO you would probably be better off taking a half position on the breakout and the other half on the pullback, the good breakouts will run and you'll miss too much of the meat of the trade on the pullback.
> 
> Enter on a break of the previous days high, but only if the following days from the low (stop point) have higher highs and lows. I would also want to see some positive signs in the swing low bar (high close and reducing volume on the pullback)




I like to use the entry system used in the Traders Action Zone which is what you have closely explained.  I also scan for the TAZ but love the breakout trade with a pullback as it gives the stock a solid support level to place your stop loss.

We may see CNT setup over the next couple of days, but other indicators are not looking so healthy


----------



## Nick Radge (23 February 2008)

MYO is a perfect example of a Darvas setups. Step was was looking for a massive expansion in volume followed by the formation of one of the boxes...which could be occurring now...


----------



## bunyip (23 February 2008)

MYO is a good looking setup that shows a confluence of classic technical features.....

1. Good strong run up accompanied by big volume increase.
2. Nice orderly pullback accompanied by shrinking volume.
3. The pullback halted near the old resistance level of $1.59 that was established on Dec. 17 (old resistance has now become new support). 
4. The pullback halted near the Fibonacci .236 retracement level.
5. The last bar on the chart (Friday 22nd) was a bullish day that closed in the top 25% of its range.
6. The last bar had more than 5 times the volume of the previous bar.

Chances are that stock will now run up far enough to produce a profitable trade. It's a case of risk management and money management from here on. A stop loss and a 'let your profit run' policy will mean the trade has limited loss potential and considerable profit potential.

The one thing this trade _*doesn't*_ have going for it is that it's against the trend of the overall market, which is very definitely bearish on both daily and weekly charts.


----------



## wildkactus (23 February 2008)

I use somthing similar for my trading.
I just use a simple ma cross then wait for a pull back, stop loss set by multiple of ATR, exit on ma cross, there are a few other criteria to meet but that's basically it. all trading on the COB data.
The key I find with this style of trading is good money management as it is not uncommon (as someone has said already pointed out) to get a lot of losses in a row, before you get a good trend going, but in the long run i do find it profitable.


----------



## BBand (23 February 2008)

MYO looks like a breakout of a flag trade to me 

Target being the height of the flag pole added to the level of where price broke above the upper line of the flag.

Do not exit at the target level, it may go higher 

- as price approaches the target price 
- tighten your stop each day (period) to say the low of the last bar (depending on your risk tolerance and the spread of the bar)

The above is the beauty of TA - so many options - trade your beliefs - its the exit that counts i.e whether or not you made a profit 

Peter


----------



## bunyip (23 February 2008)

wildkactus said:


> I use somthing similar for my trading.
> I just use a simple ma cross then wait for a pull back, stop loss set by multiple of ATR, exit on ma cross, there are a few other criteria to meet but that's basically it. all trading on the COB data.
> The key I find with this style of trading is good money management as it is not uncommon (as someone has said already pointed out) to get a lot of losses in a row, before you get a good trend going, but in the long run i do find it profitable.




Exit on cross of which MA's - which period and what type (simple MA, EMA)?


----------



## weird (23 February 2008)

bunyip said:


> The one thing this trade _*doesn't*_ have going for it is that it's against the trend of the overall market, which is very definitely bearish on both daily and weekly charts.




Whoops, I have made 15% on my portfolio going long only the last month ...


----------



## tech/a (23 February 2008)

> The above is the beauty of TA




Well I'm not so crazy about MYO.
Personally I think its weak.


----------



## BBand (23 February 2008)

Hi Tech,
By "The above is the beauty of TA", I meant that there is not just one interpretation of what type of trade it is - we are all individuals and as such we may determine a trade to be of a particular type, which almost certainly everyone will not agree on.

Who's right - who cares !
Peter


----------



## chops_a_must (23 February 2008)

weird said:


> Whoops, I have made 15% on my portfolio going long only the last month ...




The individual sector seems to be much more important...

Made less than you, but still a good result, in the same period going long materials and energy.


----------



## bunyip (23 February 2008)

BBand said:


> Hi Tech,
> By "The above is the beauty of TA", I meant that there is not just one interpretation of what type of trade it is - we are all individuals and as such we may determine a trade to be of a particular type, which almost certainly everyone will not agree on.
> 
> Who's right - who cares !
> Peter




That's right. Who's right and who's wrong doesn't matter. Maybe you're wrong on this trade and right on the next one. 
Doesn't even matter if your trade wins or loses. What matters most is the size and number of your wins compared to the size and number of your losses.


----------



## bunyip (23 February 2008)

weird said:


> Whoops, I have made 15% on my portfolio going long only the last month ...




Good for you. And you might have done even better if you'd shorted some of the plunging stocks or bought some put options

No matter what you made in the last month or any other month, it doesn't alter the fact that one of the most profit-enhancing tricks in trading is to trade with the trend of both the sector and the overall market


----------



## weird (23 February 2008)

I agree Chops, a few sectors have been doing very well, which has been contributing to the positive returns mentioned above.  Got lucky with atleast 2 with heavy buyout attempts from other companies (I have finally conceeded to RSP buyout by Xstrata).

I trade 4 long term trending systems for stocks, one is a breakout system, and I have had no signal for over a year now, the other a linear regression system which generated its first signal this weekend, but also not generated a signal for over 8 months.  The other two systems are pure momentum systems, which have picked up the mineral and energy stocks.

The entries would be considered pullbacks, however were not programmed specifically to be such. I have also recently got a position in MYO, however it is only two of ten (and a departure from minerals and energy), that is currently showing red atm.


----------



## weird (24 February 2008)

bunyip said:


> Good for you. And you might have done even better if you'd shorted some of the plunging stocks or bought some put options




As a mechanical trader, I think it is pretty hard to program such conditions, most TA indicators are just too lagging. Find one that works for providing usable market assessment before its already done, PM me ! 

Short-term trading using daily data, long and short still works, but the volatility may cause problems with the distance of stops.  Long systems, if developed on extreme bullish behaviour still work, but the trades are fewer. Using intraday for day-trading is a different story. 

Discretionary trading is probably better here, as a potentially much sharper sword. The problem is, having the skill to wield it !


----------



## bunyip (24 February 2008)

weird said:


> As a mechanical trader, I think it is pretty hard to program such conditions, most TA indicators are just too lagging. Find one that works for providing usable market assessment before its already done, PM me !
> 
> Short-term trading using daily data, long and short still works, but the volatility may cause problems with the distance of stops.  Long systems, if developed on extreme bullish behaviour still work, but the trades are fewer. Using intraday for day-trading is a different story.
> 
> Discretionary trading is probably better here, as a potentially much sharper sword. The problem is, having the skill to wield it !




Fair comments.

Lagging TA indicators don't pose any problem in my case......I don't use indicators.


----------



## tech/a (24 February 2008)

> By "The above is the beauty of TA", I meant that there is not just one interpretation of what type of trade it is




So did/do I


----------



## bunyip (24 February 2008)

Albi

I notice that you have no less than four indicator below you CNT chart. Do you use all these indicators as a matter of course in your trading?

I used to be an indicator junkie but over the years I came to regard indicators as about as useful as boobs on a beetle. Most of them are momentum based and they simply move in accordance with the price action. You might as well take off all the indicators and just focus on the price action itself.
And most of the indicators, if they're momentum based, are just overlapping each other, more or less duplicating each others movements. 

I just don't see that they add anything of value to your analysis. About the only use I can see for indicators is if you incorporate one of them in your scan criteria. 
For example, if you're setting up a scan to find uptrending stocks that have pulled back temporarily, but are now resuming their trend, you could scan for.....
* Price is above 30 & 50 day EMA's.
* 7 period Slow Stochastic %K crosses above %D.

This scan would be giving a buy signal in MYO.
You could add a volume component to the scan if you want..... e.g. today's volume is at least 50% higher than yesterdays volume.


----------



## albi000 (24 February 2008)

Hey Bunyip

I have been looking at the ZeroLag indicator recently which is why it has been added to may layout (its not usually there).  

The layout I use to build up a list of trade-able candidates consists of only a 10MA, 30EMA, 200MA, Volume and 30 EMA of volume.

Once I have built up a small list candidates (short and long) I then switch to this layout just to view other indicators just out of habit (maybe to confuse me some more).  I usually only pay attention to ADX above 20 and ADX below 40.

My Scan is as follows.   

Filter = 
H <= Ref(H,-1)
AND Ref(H,-1) <= Ref(H,-2)
AND (MA( Close, 10)) > (EMA(Close,30))
AND Close >= (EMA(Close, 30))
AND Close <= (MA(Close,10))
AND ADX(14) > 20
AND Close >= (MA(Close,200))
AND (MA(Volume,60)) >= 50000
AND Volume > 0
; 

I have switch all my '>' and '<' from my original scan to use '>=' and '<=' recently.  This brings up a lot more charts that don't fit a pullback criteria but adds a few opportunities the original misses. 

Albi


----------



## bunyip (24 February 2008)

albi000 said:


> Hey Bunyip
> 
> I have been looking at the ZeroLag indicator recently which is why it has been added to may layout (its not usually there).
> 
> ...




Fair enough Albi....thanks for the reply.

I'm a _'simple is best'_ man myself. I look for a brief retracement in a trending market, then the appearance of one of the candlestick reversal patterns to indicate that the retracement is finished and the trend is about to resume.
The trade has good profit potential if the trend does resume, but strictly limited loss potential due to my stop loss acting as a safety net if the trade goes against me.
I particularly like it when one of these candle reversal patterns shows up after the market has retraced to the vicinity of support/resistance, or to one of the Fibonacci retracement levels.
The trend resumption can be quite impressive when you get a bounce off one of these levels.

I also sometimes look for a chart pattern that has a good track of preceding explosive moves. A short consolidation in a strong trender is one such pattern. This pattern is characterised by 4 or more days of sideways price action within a strong trend. The sideways days have small ranges and the tops and bottoms of each of the days is at similar levels to all the other days.

After roughly 4 to 10 days of this tight range sideways action the price will tend to break out in the direction of the trend. And the breakout is frequently explosive.....ideal for bought option plays. Just make sure you have a contingent order in place to buy the option immediately the stock trades a few cents outside the consolidation, in the direction of the trend.
No point waiting till the end of the first breakout day....by this time the stock might have moved 5 or 6%, with a corresponding increase in the option value of anywhere from say 25 to 50%. You just can't afford to miss that much of the profit on offer, which is why you want to buy the option very shortly after the breakout begins, rather than wait a full day.

Back in the days when I traded stocks and followed hundreds of charts, I used to run scans to find setups for me.
These days I focus mainly on the Forex market, with an occasional options play on US stocks.
With only 10 or so Forex charts to look at, I prefer to just eyeball each chart to find the setups, rather than running scans. Takes me only 10 or 15 minutes each day.


----------



## wildkactus (24 February 2008)

bunyip said:


> Exit on cross of which MA's - which period and what type (simple MA, EMA)?




Bunyip, 
The exit is on the reversal of the original cross, 
The period's I use are 5 close, 21 close.
They are just simple ma's.


----------



## bunyip (25 February 2008)

wildkactus said:


> Bunyip,
> The exit is on the reversal of the original cross,
> The period's I use are 5 close, 21 close.
> They are just simple ma's.




Righto kactus, thanks.
I'll have a look at the 5/21 crossover to see if I think it has any merit as an exit strategy in the Forex market.

It's good to hear what other traders have in their arsenal of trading weapons.
Thanks for sharing this.


----------



## tech/a (26 February 2008)

Thought Id just follow up on my opinion of MYO.

This is a 120 min chart.
Notice the Bars with massive volume.
This to me is selling---WHY?
Because the subsequent bars are showing no demand----volume in BOTH casaes volume totally dries up.
Within 2 bars------price falls.


----------



## BBand (26 February 2008)

Hi Tech,
Appreciate the explanation of bar volume.

I have come across a note which I intended following up on and this may be the time to do it. - Its a strategy that I read somewhere: ----

*Net buy volume trading strategy*
If you can find strong divergencies in net volume and price, it can usually hint at pro traders accumulating stock

For instance,
If on one day 5mil shares are bought at the ask price
and 3 mil shares are sold at the bid
The net buy volume (NBV) is 2 mil shares.

Naturally , since the NBV is positive - you would expect to see the stock trending up on that day.

However, if you see the stock trending down or flat lining on that day, then you have spotted a valuable divergence.

This kind of divergence usually occurs when professional traders (who want to accumulate stock) hammer the bid with sell orders whenever the stock tries to run up.

Then they place buy orders to catch all the shares that nervous retail traders are selling

It never hurts to buy the same stocks as the pros.

Query
Do you or anyone know where I can obtain the number of shares bought at the ask and the number of shares sold at the bid at a particular price level?

From memory (e*trade), Iress software gives the total number traded (bid +ask) at each price level

Could be useful for breakouts from congestion

Peter


----------



## tech/a (26 February 2008)

Pete

Not the first time this "idea" has been exploited.
Inside trader still sells it as a leading indicator and some here subscribed.
Some even posted charts and they were followed for a time.
The results like all analysis were mixed.
Dont know if anyone has found a consistently profitable application for this idea.

Here is the thread
https://www.aussiestockforums.com/forums/showthread.php?t=5924&highlight=Inside+trader


----------



## BBand (26 February 2008)

Thanks for that Tech,

Maybe I should just stick to my readily available info. 

I have the " Master the Markets" book - one of the books on my re-read list, 
I should go back and readup on re-tests (one of my setups is breakouts from stage one)

I used to suffer from *information overload*, its amazing how your emails tend to steadily increase as you subscribe to more and more info suppliers which you think will be of help - well now I have culled most of them and I have more time for what really counts.

I have also cut back on web sites which I used to visit regularly - now I only visit two, one of which is AFL (Only forum site)

You know what - I do not miss the excess which I culled.

Probably many AFL users could benefit by reviewing their "info" suppliers, and free up more valuable time.

Peter


----------



## IFocus (27 February 2008)

bunyip said:


> Fair enough Albi....thanks for the reply.
> 
> I'm a _'simple is best'_ man myself. I look for a brief retracement in a trending market, then the appearance of one of the candlestick reversal patterns to indicate that the retracement is finished and the trend is about to resume.
> The trade has good profit potential if the trend does resume, but strictly limited loss potential due to my stop loss acting as a safety net if the trade goes against me.
> ...




bunyip have you ever looked at the Joe Ross 1-2-3 setup found here http://www.trading-naked.com/joe_ross_.htm in the Appendix A down the bottom


----------



## bunyip (1 March 2008)

IFocus said:


> bunyip have you ever looked at the Joe Ross 1-2-3 setup found here http://www.trading-naked.com/joe_ross_.htm in the Appendix A down the bottom




Indeed I have - I came across the 1  2  3 setup many moons ago.
You use it yourself with good results?


----------



## bunyip (3 March 2008)

Today's market action in MYO demonstrates how chancy it can be trading against the trend of the overall market.  MYO was a good looking setup technically, except that the buy signal was contrary to the bearish trend of the All Ords. The trade, if you'd taken it, has subsequently failed.
Bear markets, as I previously stated in this thread, are an environment for buying put options, or shorting stocks or CFD's.
Yes, some people have made money by buying stocks recently, but in a bear market, the easier and bigger money is available by playing the short side.


----------



## albi000 (13 March 2008)

Broken through support, recently tested and could fall further based on current prices.  $3.28 an important level to breach.

This is not a recomendation but an illustration of risk and target prices using this tactic 
Entry $3.34
Stop $3.48
Risk = $0.14
2xRisk = $3.06


----------



## yonnie (23 March 2008)

bunyip Back in the days when I traded stocks and followed hundreds of charts said:
			
		

> hi Bunyip,
> 
> I`ve read most of your posts and I admire your commonsense approach to your trading and life in general.
> 
> ...


----------



## bunyip (23 March 2008)

yonnie said:


> hi Bunyip,
> 
> I`ve read most of your posts and I admire your commonsense approach to your trading and life in general.
> 
> ...




Rather than go off-topic by discussing the pros and cons of Forex vs shares in this thread, I'll PM you instead.


----------

