Potential & Breakout trading--Technical tips and tricks

[mr. jeff]

tech/a and boggo,
Don't know how I missed Uranex with your postings... nevertheless an admirable trade there.

Your trading style is excellent and I appreciate the effort you put into your postings. Helpful. It never hurts to have to spell things out just to confirm you know them yourself, but reading reminders about cutting losers is something that NEVER gets old!

Hope you guys had a good profitable year.

 

[tech/a]

Breakout trading is one of the most popular forms of trading. My favourite for stock trading.I Dont use it at all for Index futures!!.

Breakout trading falls into 4 F'S once you take a trade.
The first 2 are similar and the sort of trades we want.
The second 2 are similar and the type of trades which frustrates breakout traders.
Both pairs need to be traded to maximise potential profit/loss both at the beginning and pointy end of a trade.
While I'm not going to spell out EXACTLY how I maximise each end there will be more than enough for you (If you think beneficial) to incorporate into your trading.

The 4 F'S
(1) FLY
(2) FLOW
(3) FLAT
(4) FAILURE

Below is a short discussion on the first 2 and accompanying charts.
These 2 F's provide the profit to your portfolio and the management of ALL 4 F'S will add a great deal to your expectancy over a number of trades.

CLICK TO EXPAND





Ill post up the other 2 (And the most important in terms of Trade and portfolio management) when I have some clear time.
I hope these hints on practical application of a trading method help those who share a passion for breakout trading like myself.

 

[Lone Wolf]

Breakout trading is one of the most popular forms of trading. My favourite for stock trading.I Dont use it at all for Index futures!!.

What is it about index futures that makes them unsuitable for breakout trading? More likely to be caught in a false break?

 

[tech/a]

What is it about index futures that makes them unsuitable for breakout trading? More likely to be caught in a false break?

This is a whole new topic but in short.
Support/Resistance and fading wide range Very high volume bars is my preference.

 

[tech/a]

Before I go onto the last 2
(3) Flat
(4) Failure.

I want to pass on the single most influential factor in profits I have seen and can personally attest to.

PORTFOLIO MANAGEMENT

As discretionary traders we CAN and SHOULD constantly manage our portfolio-- Mechanical traders are not as fortunate they MUST and SHOULD follow their proven System to achieve their Tested Expectancy .

THIS MEANS as discretionary traders we work relentlessly at skewing our portfolio's expectancy higher.---in every trade intraday/daily or as our discretion demands it.

How is this done?

(1) More winners
(2) Less losers
(3) Smaller losers
(4) Bigger winners
(5) HIGHER FREQUENCY TRADING

I have already demonstrated one way of milking maximum profits from a move which turns exponential.

Now with (3) Flat prospects and (4) Failures we will look into Smaller losers/and importantly Higher frequency trading.

While I have placed this in the breakout thread it is important for ALL discretionary trading methods to understand---and implement.

 

[tech/a]

So to
(3) Flat
(4) Failure.

Personally when I take a trade I want to see it conform to my analysis and in this case it should be a breakout which CONTINUES.

I place my trade using Fixed fractional position sizing using a pivot/Low of a particular volume bar/the previous High of a gap breakout as my stop level. This will govern my position sizing.
I'm am highly likely to exit BEFORE the stop is hit but NEVER after it (Slippage accepted).

So we place a trade then over the next few days it stalls---goes FLAT!
The question is do we continue in the trade?
Do we hold endlessly until it hits our stop or do we look for an exit and take it!

For me the answer is simple.

If the trade doesn't move in my direction within 5 periods and or the consequential price action doesn't clearly point to a continuation of the breakout then I will exit.
I choose 5 periods as Volume Spread Analysis only stays valid for the bar in question (In this case the breakout bar) for 3-5 periods---unless in that time a bar of the next 3-5 exhibits clear indication that the breakout will continue ---then I exit at the highest price I can get that day regardless of my trade being in loss but not stopped out OR in profit---yet flat.

CLICK TO EXPAND


Its been my experience that the trade off between lost (Potential) profit and another opportunity at another breakout is well weighted to taking another opportunity rather than sitting waiting and waiting and waiting----

The chart enclosed is of an actual trade.
You'll note that while recorded as a loss my stop $1500 was never remotely challenged
but the loss was recorded at $116 plus $6 brokerage. Not even a drop in the ocean.

CLICK TO EXPAND


Although I set my position sizing on a $1500 stop level my average loss is $396
My average win is $2320---- (Last time I did the figures. In Nov)
So to me its pretty clear that portfolio management plays a massive role in DISCRETIONARY trading.

There is NO PLACE for set the trade and WAIT and HOPE.
Higher frequency--higher opportunity

TAKE CONTROL

Best of New Years Trading fellow Breakout traders I hope this year brings you record profits and my little Hints Ramble helps some of you out!

 

[satanoperca]

Thanks Tech/A for the write ups, very valuable and understandable.

Gee, you could setup your own make 300000000% in just 30 days course and charge a fortune instead you offer these tips for free. You are a true gentleman.

Thanks again and keep them coming.

 

[tech/a]

Thanks Tech/A for the write ups, very valuable and understandable.

Gee, you could setup your own make 300000000% in just 30 days course and charge a fortune instead you offer these tips for free. You are a true gentleman.

Thanks again and keep them coming.

Yeh somebody will read it here package it up in some glossy crap and it will be in India or China being totted as the next Big thing.

You know if anyone finds this helpful in their trading I would appreciate the feed back --- you can private mail me.
Interested in practical application stories.

 

[white_crane]

Thanks for all the input tech/a and others. It is certainly very helpful and very much appreciated.

I'm still learning and trying to take it all in bit by bit.

I've had a break from trading over the Christmas period, but if I get the opportunity in the near future, I will post a breakout trade I make.

 

[Boggo]

A couple of daily charts (KZL & CGG) from my scan that meet the eyeball test and have potential.

Both seem to have their own issues, every time KZL has a go it seems to run into a brick wall and CGG is trying to break out of that sideways movement.
(I already hold CGG)

Weekly scan, SLR would probably be the only result to meet the initial eyeball test and the daily pattern is also appealing.

These are not recommendations, just breakout discussion candidates.

(click to expand)

 

[luke256]

I don't trade these stocks but looks like they are ready for a break out. Often when the daily bars work sideways for a reasonable amount of time it is preparing for a decent break out.

It should be an interesting one to watch.



This is a long sideways movement and would be good to watch for a breakout as well:

 

[tech/a]

Not ALL breakouts are EQUAL.

My research has proven to me that the above is true.
With absolutely no disrespect for any other posters and their suggestions
I'm seeing ANY breakout pattern as a possibility to trade (true) but if our aim is to maximise return by

(1) Being on those that rise exponentially
(2) Cutting loose those which fail to follow through in a reasonable time.
(3) Filling out trade portfolio with prospects
(4) Being ruthless with those which clearly indicate they will reverse.

Surely not every breakout SHOULD be considered?

I'm interested in what makes a prospect one for the portfolio in the mind of others.
Whilst I may not agree please Dont feel like I'm on a witch hunt----
I'm certainly not perfect in my selections but have found a common number of threads to help consistent forward momentum of your portfolio.

Just as a way of demonstrating my point here is a shot of the same portfolio as shown at Close of 31/12 and at 10.15 am Adelaide time.
If you compare the two momentum is clearly continuing (as it is expected by analysis).

As at 31/12/10



Today

 

[tech/a]

LYC

Hope your doing well on this now flying!!

 

[Boggo]

Hope your doing well on this now flying!!

Yes, going good at the moment thanks tech/a. Some great opportunities have presented themselves with this simple breakout procedure.

I am wondering what the market may do when we get to around 5000, a correction perhaps ?
What are your thoughts ?

My current thinking is tight stops, lock in profits, sit back and repeat the whole process again when the next upturn appears.

(click to expand)

 

[Ruby]

Hi Tech/a,

Thank you for this wealth of information. I love break-out trades and look forward to a continuation of this illuminating thread. Do you use this type of trading for FX?

What would be great - though extra work for those posting - would be a second chart not too far behind the first, showing us how the trade worked out. I know it sometimes means exposing losses for all to see, but we can sympathise (having been there) and learn from it.

Cheers,

Ruby

 

[tech/a]

Ruby Dont mind posting trades after they occur. Meaning FILLED that way any charts wont be seen as recommendations.

I think the interest would or should be in trade /portfolio management.
The thinking behind holding or folding.

You'd get sick of all the losing trades Id post up here.
And you'd pull your hair out when you see one take off again and I Dont trade it!
But you'd also see the ones I do.

Here is a continuation of YTC one I'm currently trading AND posted on the breakout thread.

 

[tech/a]

Just thought Id post up a bad day.

You'll notice I've done some culling.
You'll also notice that some stops are really close to the price action currently.
The management of each trade is based upon chart patterns and volume on the current chart.
These (stops) will be tightened or relaxed according to the chart.
Codes are not disclosed.


Click to expand

 

[Boggo]

Gave back 70% of yesterdays gains today. Stopped out of RRL and USA.
Not sure what went on with RRL, got home at midday and it had obviously had a major spike down through my stop at 2.21.

I am now starting to see a few good opportunities being picked up.

One I am watching carefully for another breakout is IAU, weekly chart of MCR has also got my attention but a few hurdles still exist there.

(click to expand)

 

[tech/a]

Boggo

Whats your thinking re LYC?

 

[Boggo]

Boggo

Whats your thinking re LYC?

I entered LYC on 21/12 on a signal from my breakout system and then added to that on 30/12 on the turtle signal.
https://www.aussiestockforums.com/forums/showthread.php?t=20906&p=600912&viewfull=1#post600912

Usually I would keep a tight daily chart stop on this type of breakaway as we have discussed earlier (see below for stop lines) but I am staying a bit further away from the action on this by applying a stop just below the line on the weekly chart which also coincides with a possible daily support level.

I am being influenced by sentiment towards this stock which is being generated by news such as this extract from Bloomberg USA...

Rare earth miners outside of China have soared since December 29, when China restricted rare earth exports by 35 percent for the first half of 2011 compared with a year earlier.

Avalon's shares have risen as much as 75.8 percent since China released the quota.

China produces more than 95 percent of the world's rare earth oxides, which are used in a variety of technology applications from electric cars to smartphones and computers.

The quotas have left companies whose products require rare earth metals clamoring to secure supply outside China.

Shares of first-to-market producer Lynas (LYC.AX), which expects to be producing rare earths at its Mount Weld project in Australia within a year, have risen a much as 38 percent since China published its quotas.

Molycorp (MCP.N), which owns the Mountain Pass mine in California and plans to be in full production by 2012, has jumped almost 375 percent to $62.78 since listing at $13.50 in July 2010.

Based on that I am going to give this some room to move around.

I would be interested in your views on LYC though.

(Daily and weekly charts, click to expand)