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Breakout Confirmation? ideas

  • #21
  • Aug 2, 2008 2:55pm Aug 2, 2008 2:55pm
Quoting Patrino
NowAndLater: Thanks for the responce, i have never used the M1 to judge a brk-retest. I tend to use the retest time frame that is 4 times smaller than the setup timeframe. ie: 1hour setup 15min retest. 4hr setup 1hr retest. I do this because i doubt the reliability of the retest in smaller timeframes.
Im interested to know how your method differs, could you post a chart example?
Thanks
I look for overnight ranges on M15 based on the big view, when the breakout occurs I switch to M1 and watch the speed and the priceaction and relate that to how significant the range boundaries are, how many times the range boundary that is about to be broken have been tested within the range and how tight and long the range is. So it's different from one time to another.
  • #22
  • Edited 5:07am Aug 11, 2008 3:09am | Edited 5:07am
First of all look at where price is at the moment. Price went below 1.5000 but stopped and is now reversing giving the overnight range shown between the two solid yellow lines on M15 chart. That is a great range since the resistance of the range is a major resistance as well. Following the 2 downdays a retracement might follow as well so this was perfect.
Switching down to M1 to watch the priceaction around the break. The entry is given by the green line and the sl is given by the red line, and the entry is just above the psychological level (1.5000) and the sl is just below - perfect imo. The stoploss size is 1.5002-1.4993 + 2 pips spread = 11 pips so the risk:reward ratio is awesome. And this is as good as a breakout comes, just around a major s/r level. BE could have easily been taken at 1:1.
Bare in mind that it's a countertrend (on the past 2-3 week) trade but there's a huge s/r area below the trade and and we could be continuing the longterm uptrend from here.
Attached Image(s) (click to enlarge)
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Click to Enlarge Name: EU M1.JPG Size: 95 KB
  • #23
  • Aug 11, 2008 12:48pm Aug 11, 2008 12:48pm
Hi NowAndLater.

Thanks for the example, I like it. It is identical to what i do on larger timeframes yet allows for a much smaller stop.
I do use an overnight range strategy for 1hr ranges but the set criteria for me is only in the direction of the trend and only if the last x days have been making higher lows higher highs etc..(reverse) This method has only given me few opportunities a week/month sadly. Due to my strict criteria.

I will include the 15min ranges from now, and consider the m1 in breakout retests. Going counter trend isn't something im keen on but if your having reasonable results by doing so i will consider it on a case by case. Such as the 123 reversal range in your example off of strong support.

Thanks for taking the time to offer advice
  • #24
  • Aug 11, 2008 1:48pm Aug 11, 2008 1:48pm
Quoting Patrino
Hi NowAndLater.

Thanks for the example, I like it. It is identical to what i do on larger timeframes yet allows for a much smaller stop.
I do use an overnight range strategy for 1hr ranges but the set criteria for me is only in the direction of the trend and only if the last x days have been making higher lows higher highs etc..(reverse) This method has only given me few opportunities a week/month sadly. Due to my strict criteria.

I will include the 15min ranges from now, and consider the m1 in breakout retests. Going counter trend isn't something im keen on but if your having reasonable results by doing so i will consider it on a case by case. Such as the 123 reversal range in your example off of strong support.

Thanks for taking the time to offer advice
I like to trade with the trend as much as possible, but sometimes like the example you can take a countertrend move for a small profit when the setup is supported by other things (as the 1.5000-level). The trend is cleraly down and I actually closed out and reversed the trades when I saw this chart below (this chart is from my journal).
Around 1.5060 was a minor s/r level. Price had just broken through it and was consolidating. If the trend of the breakout trade was to continue we needed to hold this. So at the break down from here and retest of this level, considering the overall trend is down, I closed my long and entered short.
These days the trend is clearly with the USD, but there are times when it's harder to define a trend, and a breakout like this to either side might work out well. Just be sure of bigger s/r area. And I scale out as well so my trades are often pretty fast a minimum BE trade.
Attached Image (click to enlarge)
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  • #25
  • Aug 11, 2008 2:46pm Aug 11, 2008 2:46pm
I'm partial to trading breakouts myself, but you've to be sharp. The best breakouts are the ones that fly right from the start, if they don't then I try and bank partial profits and/limit exposure/or get the stop to break even ASAP. It is perhaps only 25 to 30% of the trades that fly, possibly even less, but I have found that moves at certain times of day are more likely to 'stick' than others. London open (breakout of Asian range) and the first couple of hours of the NY/London overlap are when I have observed the highest incidence of successful breakouts. At times of lower volume the moves tend to clear the stops of straddle traders (what they would call a 'fake-out', but there is nothing fake about it). So trading at high probability times of day should improve the success rate.

A wizened trader once told me that the key to trading successfully is to enable yourself to bank profits even when you're wrong - buying at a resistance level is fraught with danger because if you're wrong, it is unlikely you're going to get the opportunity to bank even small profits. I think many breakout traders (and textbooks) place too much importance on a break of a historic support/resistance area by a few pips. Whether these moves are engineered to collect orders or simply market noise is up for debate, but it is a little naive to hastily jump in when one of these levels is breached by a couple of pips on the assumption that a breakout (range => trend) is occurring.

One way that I do this is to wait for either the break AND the retest and if lower time frame price action suggests it is just a retest and begins to head back in the direction of the breakout then I will enter with a tight stop below the retracement of the retest. Often it will not retest but will retrace some on the lower time frames (<10m) - and it is this that gives the most information about the move - if the first high after the breakout is taken out then it fits the definition that the market is trending and so I will enter a position there, again keeping stops tight below the retracement.

You won't catch every move, you won't catch as much on some of the moves as straddle traders but then you won't get 'faked out' as much.


This method is based on Joe Ross' The Law of Charts and the Ross Hook. Get on google, plenty of links there, plus he explains it much better than me.
  • #26
  • Aug 11, 2008 3:54pm Aug 11, 2008 3:54pm
Quoting birdt
One way that I do this is to wait for either the break AND the retest and if lower time frame price action suggests it is just a retest and begins to head back in the direction of the breakout then I will enter with a tight stop below the retracement of the retest. Often it will not retest but will retrace some on the lower time frames (<10m) - and it is this that gives the most information about the move - if the first high after the breakout is taken out then it fits the definition that the market is trending and so I will enter a position there, again keeping stops tight below the retracement.
Is there any difference from my strategy that I've described on this thread?
  • #27
  • Aug 11, 2008 4:54pm Aug 11, 2008 4:54pm
Quoting NowAndLater
Is there any difference from my strategy that I've described on this thread?
I believe it does differ. I do trade the retests if they come back (in all explanations assume a breakout above for simplicity) right to the resistance turned support and the candles start making higher highs on the lower time frames. However I will buy a break of the candle preceding the first candle after a breakout that fails to make a new high - not just a retest. Again, Joe Ross does a much better job of explaining than I do but I'll attempt to show an example.

Perhaps it is a bad example (in fact the straddle trader would have done significantly better) because today was not a great day for the Asian range breakout strategy with GU but hopefully you can see the method behind it.
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  • #28
  • Aug 11, 2008 5:07pm Aug 11, 2008 5:07pm
Quoting birdt
I believe it does differ. I do trade the retests if they come back (in all explanations assume a breakout above for simplicity) right to the resistance turned support and the candles start making higher highs on the lower time frames. However I will buy a break of the candle preceding the first candle after a breakout that fails to make a new high - not just a retest. Again, Joe Ross does a much better job of explaining than I do but I'll attempt to show an example.

Perhaps it is a bad example (in fact the straddle trader would have done significantly better) because today was not a great day for the Asian range breakout strategy with GU but hopefully you can see the method behind it.
I don't see the difference but if you say there is one, that's fine. Maybe it's just too late
  • #29
  • Aug 11, 2008 6:03pm Aug 11, 2008 6:03pm
It may well be the case that the methods are very similar if not the same; logic travels down the same avenues after all. However, there's quite a lot of stuff going on in your chart and by your text there appears to a discrepancy.

My perception of a retest is where it retraces back to the exact area of the support turned resistance - give or take a few pips, but the more precise the better. I am not going to go into the specifics of my Retest Entry method but I would basically jump in as early as I saw price moving back in the direction of the breakout.

The Ross Hook method I used in the example retraced way back into the middle of the range before following through the Ross Hook (the candle preceding the first candle that failed to make a new low, as marked by the green line). I would also enter using the same method if it barely retraced at all and did not get close to the support turned resistance, even if it were just one 5m bar that was still bearish but failed to make a new low - for me that constitutes enough of a pullback to enter a position if the low of the preceding bar was taken out.


From what I have read of the DIBS thread and your inclination to that method I think you might be inclined to some of the Joe Ross stuff, if it is not too presumptuous of me to say so.
  • #30
  • Aug 11, 2008 8:33pm Aug 11, 2008 8:33pm
NowAndLater: Well done on your trade, it hit the range target perfecty.
I think i would be too much of a chicken trader to now go short on it.hehe


BirdT: I think your breakout method is similar in terms of waiting to see signs of a retest before entering, but from what you have detailed i believe you use a more aggressive approach when looking for a retest. As you mentioned taking pullbacks that dont touch the s/r as confirmation but come close, where as i
need to see a retest pullback touch the s/r (atleast).
That apart very similar.

Also the method in your example where the break fails and re-enters the range, i can take the exact same entry as long as it doesn't breach the 50% on the pullback.

Very encouraging to know that other people are using similar methods with positive results.

I have had failed moves occur on me a few times after accepting a one bar pullback, instead of having a small swing retest. Again i need to look at those mini timeframes.
  • #31
  • Aug 12, 2008 2:55am Aug 12, 2008 2:55am
Quoting birdt
It may well be the case that the methods are very similar if not the same; logic travels down the same avenues after all. However, there's quite a lot of stuff going on in your chart and by your text there appears to a discrepancy.

My perception of a retest is where it retraces back to the exact area of the support turned resistance - give or take a few pips, but the more precise the better. I am not going to go into the specifics of my Retest Entry method but I would basically jump in as early as I saw price moving back in the direction of the breakout.

The Ross Hook method I used in the example retraced way back into the middle of the range before following through the Ross Hook (the candle preceding the first candle that failed to make a new low, as marked by the green line). I would also enter using the same method if it barely retraced at all and did not get close to the support turned resistance, even if it were just one 5m bar that was still bearish but failed to make a new low - for me that constitutes enough of a pullback to enter a position if the low of the preceding bar was taken out.


From what I have read of the DIBS thread and your inclination to that method I think you might be inclined to some of the Joe Ross stuff, if it is not too presumptuous of me to say so.
Gotcha, it's clearer now in the morning
  • #32
  • Aug 13, 2008 12:09pm Aug 13, 2008 12:09pm
@NowAndLater
Should we trade during news or breakout won't effective?
  • #33
  • Aug 13, 2008 1:15pm Aug 13, 2008 1:15pm
Quoting blucky
@NowAndLater
Should we trade during news or breakout won't effective?
You can do what you want, there are no rules for when to trade. What I can say that it's risky to trade during news and I usually won't enter a trade within the last 1-2 hours of a major news as the breakouts are mostly fake and markets often are in consolidation. If I'm already in a trade, I'll tighten my sl if I haven't already reached BE, but that's hardly the case.
  • #34
  • Aug 13, 2008 1:27pm Aug 13, 2008 1:27pm
While this breakout method may differ slightly from the current discussions, i've found the videos and explanation by Phil Newton very clear.

http://www.forexfactory.com/showthread.php?t=99395
  • #35
  • Aug 13, 2008 1:29pm Aug 13, 2008 1:29pm
Quoting sojournerr
While this breakout method may differ slightly from the current discussions, i've found the videos and explanation by Phil Newton very clear.

http://www.forexfactory.com/showthread.php?t=99395
Yes that is the original system, and I've been using it for a while with good results.
  • #36
  • Aug 14, 2008 6:24pm Aug 14, 2008 6:24pm
Small world, i just learned a useful scale out method from Phil Newton.

On another subject, how are you all finding August trading? Im taking August as a break. For those still trading , are you finding trends and breaks lasting or fizzling early?
  • #37
  • Aug 14, 2008 10:26pm Aug 14, 2008 10:26pm
Here's the idea to get through your head:

Breakout filters don't exist.
  • #38
  • Aug 15, 2008 6:47pm Aug 15, 2008 6:47pm
Quoting tdion
Here's the idea to get through your head:

Breakout filters don't exist.
Whos looking for a breakout filter???
  • #39
  • Aug 15, 2008 6:48pm Aug 15, 2008 6:48pm
You are.
  • #40
  • Aug 16, 2008 5:31pm Aug 16, 2008 5:31pm
If you read the original post, im looking for all breakout confirmation ideas. Are you saying confirmations don't exist? Can you define "breakout filter"
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