Better Breakout Trading

[tech/a]

Further to Kenna's post in "Outstanding Breakouts"
I thought that as Boggo had pointed out it was timely that we perhaps discuss what an Outstanding Breakout actually is and

More Importantly How best to trade them.

Below are SOME of my breakout trading "secrets" Ive traded breakouts for years and trade 2 types.

The conventional which is being discussed here (Price Breakouts,either supported or not by volume).
And the Non Conventional (Volume breakouts either supported or not supported by range.)

My definition of an outstanding breakout is one which is supported by obvious corroborative evidence before the breakout which is confirmed by the breakout itself. Often we see this evidence but nothing comes of it.
Often we will see breakouts without much or any of such evidence.

So what is this evidence.
In importance.

(1) Price must breakout of something,a trend break,or a consolidation.(Not the case for Volume Breakouts---seperate topic)
(2) A gap out of the consolidation or in an opposite direction is preferable.
(3) There must be a confirmation in volume and NOT necessarily on the breakout bar,but it must either (Volume) herald an exhaustive move in a direction or an absorption of selling (Often a volume breakout in its own right).

Chart is BLY click to expand.



I hold BLY but have been trading a lot of this move in a 60 min timeframe--havent grabbed it all but a good bit from 31/7.
This is a good illustration.

I put this here because its close to the "Breakout threads"

 

[white_crane]

Thanks for the info tech/a. I knew some of these points, but have picked up a few of the finer details now.

white_crane

 

[Boggo]

This is probably a good example for discussion/education, its got volume, potential and if the next break runs like the last may be outstanding.

(click to expand)

 

[tech/a]

This is probably a good example for discussion/education, its got volume, potential and if the next break runs like the last may be outstanding.

(click to expand)

Gee I hope so have a few at $3.25 average!

 

[tech/a]

Well that created as much discussion as a fart in a lift.
Looks like most talk about breakouts and few trade them.

 

[Boggo]

The idea was good tech/a.
This thread was forgotten as there was a kerfuffle on the 'Potential Breakouts' thread about what constituted a breakout, what the word potential meant and then an attempt to combine both words in the same sentence sent kennas running to the fridge for another Pilsen Callao

I did put up a chart in post #1363 on that thread for kennas to give a ruling on but I think he may have a well stocked fridge as I haven't heard from him since :alcohol:

 

[white_crane]

I'd be interested to know what criteria you use for a scan. I'm trying to develop one at the moment. Currently I use:

% price movement, 3 days, min -3%
% price movement, 3 days, max 3%
Volume closes above the 100 day MA

i.e. when the price is not doing much, but the volume is increasing

 

[tech/a]

All of my prospects come from various scans which are not related to specific breakout or Potential breakout criteria.

They will come from eyeballing many charts and experience in what immediately catches the eye with regard to pattern,past and immediate.
When you look at couple of 100 charts which I can flick through in 30 mins
those with potential tend to jump off the page.

From there its a matter of further grilling criteria Price range and volume characteristics---to place in a watch list or set a conditional buy order.

This can be done in any timeframe.
I use Daily and Hrly but will trade a 15 min pattern.

 

[Lone Wolf]

Tech, thanks for the thread, it may not have taken off, but I appreciate you taking the time to offer your thoughts.

Out of interest, lets look at the WHC chart Boggo posted. Where is WHC now...



There was good volume as price rushed up towards Boggo's breakout line, but then price stalled (possibly just after triggering an entry). Could a better entry have been found at the break of the downward trend? Volume was decreasing as price moved down, then shot back up as price moved up. That could have given an earlier entry at around 3.20 maybe. But is that really a breakout? The downward trend I'm talking about only lasted a week, then we still had the resistance immediately above us at around 3.45. Is it worth taking an early entry using a tighter stop when there is possible resistance overhead?

We currently have a similar pattern, with price moving down on decreased volume, you could take an entry at the next sign on a turnaround on volume and have a tighter stop, or wait for price to break the trend line it failed to break last time. Does a failed breakout weaken or strengthen the effect of future breaks of that level?

Also, I noticed that in the charts you posted the consolidation seems very tight, as opposed to WHC where price movement is contained in a larger channel. What effect does this have on the outcome of a break? Does tighter consolidation offer a better chance for a break, or does it simply offer better risk/reward ratio?

 

[hmmm]

I'd be interested to know what criteria you use for a scan. I'm trying to develop one at the moment. Currently I use:

% price movement, 3 days, min -3%
% price movement, 3 days, max 3%
Volume closes above the 100 day MA

i.e. when the price is not doing much, but the volume is increasing

Hi there, i was also wondering what criteria you use for a scan but also how you go about scanning with this criteria? do you use a program to do it or go through manually?

cheers

 

[white_crane]

Hi there, i was also wondering what criteria you use for a scan but also how you go about scanning with this criteria? do you use a program to do it or go through manually?

cheers

I do this through Incredible Charts, but most charting programs should be able to do it (or something similar).

 

[Boggo]

Tech, thanks for the thread, it may not have taken off, but I appreciate you taking the time to offer your thoughts.

Out of interest, lets look at the WHC chart Boggo posted. Where is WHC now...

There was good volume as price rushed up towards Boggo's breakout line, but then price stalled (possibly just after triggering an entry). Could a better entry have been found at the break of the downward trend? Volume was decreasing as price moved down, then shot back up as price moved up. That could have given an earlier entry at around 3.20 maybe. But is that really a breakout? The downward trend I'm talking about only lasted a week, then we still had the resistance immediately above us at around 3.45. Is it worth taking an early entry using a tighter stop when there is possible resistance overhead?

We currently have a similar pattern, with price moving down on decreased volume, you could take an entry at the next sign on a turnaround on volume and have a tighter stop, or wait for price to break the trend line it failed to break last time. Does a failed breakout weaken or strengthen the effect of future breaks of that level?

Also, I noticed that in the charts you posted the consolidation seems very tight, as opposed to WHC where price movement is contained in a larger channel. What effect does this have on the outcome of a break? Does tighter consolidation offer a better chance for a break, or does it simply offer better risk/reward ratio?

Some good questions there Lone Wolf and a good thread idea by tech/a.

I bought WHC in two of the three accounts that I run, one is a SMSF and I still hold WHC there due to applying wider stops (different set of rules).

My trading account simple rules are if it doesn't perform and hesitates then its out, in this case out of WHC and into LYC on the 17th. I took a small loss on WHC but it freed up funds for LYC which has compensated for the loss.

Sometimes it goes the other way too but cutting the losses and having free capital in the trading account works well.

I find that these breakouts are excellent, usually a run up followed by a correction and then catch the next run.

Trading Elliott Wave ABC corrections is a similiar process, MCR in mid July is a good example.

Some get away if capital is tied up elsewhere (MCR ) but its impossible to buy all of them.

Back to WHC current behaviour, I still see a positive side to this stock as a longer term hold due to the overall uptrend and the decreasing volume with the drop in price and a possibility of support around 3.13 to 3.15.

Volume etc is one for tech/a to elaborate on perhaps.

 

[tech/a]

Out of interest, lets look at the WHC chart Boggo posted. Where is WHC now...

Just a quick look at WHC which I'm no longer in.
CLICK TO EXPAND

 

[fapturbo]

I'd be interested to know what criteria you use for a scan. I'm trying to develop one at the moment. Currently I use:

% price movement, 3 days, min -3%
% price movement, 3 days, max 3%
Volume closes above the 100 day MA

i.e. when the price is not doing much, but the volume is increasing

How about a close above a 200 Day High.

Significant event.

 

[Lone Wolf]

Boggo/Tech, thanks for the input.

I think if I was in WHC I'd still be in now. Maybe with a stop at around 3.09. Might be a bit low but there seems to be more support down there. But as far as WHC being a "better breakout" trade, it appears it's not to be, not yet at least.

As Tech said in his first post, sometimes you see evidence but nothing comes of it. It's all about good trade management, if this stock didn't work out as hoped, go find another.

Happy hunting.

 

[tech/a]

Just an update of some personal observations on the 2 charts being watched.
CLICK TO EXPAND
Top chart GDA
Bottom Chart WHC

 

[white_crane]

Thanks for the new info. tech/a

How about a close above a 200 Day High.

Significant event.

The difference between a breakout and a potential breakout? I was working on criteria that identify a breakout that might happen soon, as opposed to a breakout that has/is happening. I guess there are multiple criterion that one could use.

 

[plankton]

Hi Tech,

Been following your posts for a while thanks heaps

Could you explain what the last indicator on your whc chart is (is it moving averages on volume or price?) and what you think the technical significance of it is considering the strong support and the potential for breakout.

Cheers

 

[tech/a]

The bands are from the bottom.
.25 of average volume
Average volume
2x average volume
3x average volume.


The importance of support is obvious. If price is consistently held at a price then trading below it for any length of time would be a clear sign of lower prices.

Volume on any counter move to the predominant move in this case bullish on WHC is more important.
When we see a sharp decline in volume on down moves that clearly shows lack of supply.
Gaps to any side show a sharp movement in that direction and often act as support.
This shows a clear effort by buyers in this case to snap up the lower prices and move the stock beyond the price it has been trading at for sometime.
locking in those buyers at lower prices who are happy to hold as price rises.
Yesterdays close is higher than the previous 6 days. A strong indicator.
$3.60 now being the next hurdle.

 

[vicb]

Hi all,
Trying to break my teeth on reading charts.
Thought this was an interesting chart and would like to see what other thought.
Notice the decreasing volume in the last couple of days.
This share is currently in merger talks with LST.