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Breakout problems

  • #1
  • First Post: Edited Jan 8, 2010 8:18am Dec 15, 2009 4:08am | Edited Jan 8, 2010 8:18am
Dear Master Traders

Hi all, i am a relatively new trader on FX. I used to trade stocks and the futures. Well, guess what, I got sick of all the sudden moves which always takes me out, and ppl here loves news trading. I didnt do as well as I thought i would with my technical analysis.

I have started FX 6 months ago by trying out a demo account. (I was trying to find a better way out of this HK stocks "hole", I know there is a bigger world out there for me to become a better trader, but not some muti billion chinese business man who swings the prices up and down without any notice, and dump his stocks to all the news readers... Dont get me wrong thou, the FHSI futures are doing ok)

I blew my first account, with some very exciting impulsive moves... So i made up my mine to learn everything I can about this game to keep and grow my second.

Well, with some luck, I redicovered a way to trade S&R, which was the first thing i have learned in trading... (yes, i have been through the indicator wonderland and back)

I have been trading S&R with some sucess for the past 3 months on the demo. My account grew 45% with some MM and good RR (and luck!). I was just ready to take it into real. However, I came across this forum and found many Master's trades were against mine... My stop loss became their profits...

Reading their post made me feel so small, and they were able to see things that i could not see. I decided to read all of James 16's thread and some others on PA.

The main question which I really need help from is: When price reach a S or R, there are often time when it breaks through and carry on straight through to the next S & R, those are my good trades.

However, there are enough times when the price stops and reverse on me after the first breakout, and i take stop loss.

I have read the advice from Merlin "Dont trade a breakout if it is not followed by a fake". I tried to use PA on the S & R zones but its so confusing!!! There are always bullish signals after bearish and bearish after bullish!! It doesnt help going into lower time frame either, it just gets worst!!!

I would like to ask if tape reading bcomes important here? Since I cannot use real VSA on FX bcos of the tick volume issue, I really dont know how to determine which support will be a breakout and which one will be a reverse... Somone with experience, plz give me light!!
Life is a school for the soul
  • #2
  • Dec 15, 2009 4:47am Dec 15, 2009 4:47am
I started to get some success when I looked at the overall trend. I don't mean on the time frame I want to trade, I mean monthly, weekly and daily.

I would look for a set up on the weekly, wait for it to look good on the daily and then trade off s/r in the H4 and hourly, but only in the direction of the main trend.

Another thing I look for is compression. By that I mean when the price is stuck in a range on, say, the hourly, and the range is tighter than usual. Some people look at Bollinger Bands for this but I use Donchian channels and compare the range of the channel to the average true range indicator. Usually this will indicate a break out is going to occur and I never take it against the overall trend. Similar things happen with inside bars. There are a lot of ways to approach this and it pays to put a bit of research in.

Therefore, I am looking at several pairs, typically 6 -8 and looking for set ups.

For example at the moment I am short EUR/GBP. Therefore, I would not look at shorting GBP/USD but I would look at shorting EUR/USD. It's got to fit into an overall pattern. Hoping this gives you food for thought.
Gone to a better place
  • #3
  • Dec 15, 2009 8:40am Dec 15, 2009 8:40am
Quoting smikester
I would look for a set up on the weekly, wait for it to look good on the daily and then trade off s/r in the H4 and hourly, but only in the direction of the main trend.


Monitor higher timeframes, then move down, and then make a choice of short/long/nothing. If you go against the main trend, then theres a good chance that you'll get a fake out.
  • #4
  • Dec 16, 2009 3:02am Dec 16, 2009 3:02am
Quoting smikester
I started to get some success when I looked at the overall trend. I don't mean on the time frame I want to trade, I mean monthly, weekly and daily.

I would look for a set up on the weekly, wait for it to look good on the daily and then trade off s/r in the H4 and hourly, but only in the direction of the main trend.

Another thing I look for is compression. By that I mean when the price is stuck in a range on, say, the hourly, and the range is tighter than usual. Some people look at Bollinger Bands for this but I use Donchian channels and compare...
Well thx smikester, i will try stop trading counter trend 100%.

However, i am still stuck at the point where i dont quite understand PA around those s & r level... I should post a chart to really explain what confuse me most. I hope this explains my problem better
Attached Image (click to enlarge)
Click to Enlarge Name: EURUSD 1.GIF Size: 47 KB
Life is a school for the soul
  • #5
  • Dec 16, 2009 3:19am Dec 16, 2009 3:19am
You chose a good example here because I actually traded that and not very brilliantly but you will get the idea. Chart to follow.
Gone to a better place
  • #6
  • Dec 16, 2009 3:40am Dec 16, 2009 3:40am
On this chart you can see Donchian channels. I like them because they roughly define s/r on any given time frame but here they define the range. You don't need to use them you can see it. Just look at the grey box.

Attached Image (click to enlarge)
Click to Enlarge Name: eurusd091216.gif Size: 27 KB


So, which way is it going to break out? We look for price action and a host of other things but for me the most important is the higher time frame trend which, in this case, is down. We wait for a closing bar below this box. It should be a nice close, not with long dangly bits which only prove it didn't want to go down there. We set a market order just below that close. This achieves two things: 1. You only get a fill if the price is moving in the direction you want. 2. You will get a fill if the price is moving quite fast. Our stop loss goes above the box. In this case about 25 pips away. We choose the smallest leverage and be happy with a small win or loss as we get better. I like to set 2 trades. One would have 25 pip tp and the other would be a runner. Sometimes these can get hundreds of pips. Read James 16's latest posts.
Gone to a better place
  • #7
  • Dec 16, 2009 3:58am Dec 16, 2009 3:58am
Quoting smikester
On this chart you can see Donchian channels. I like them because they roughly define s/r on any given time frame but here they define the range. You don't need to use them you can see it. Just look at the grey box.

Attachment

So, which way is it going to break out? We look for price action and a host of other things but for me the most important is the higher time frame trend which, in this case, is down. We wait for a closing bar below this box. It should be a nice close, not with long dangly bits which only prove it didn't want...
Thx so much smik! That was really helpful. I totally understand your logic in this trade and u did a good job trading that break!! I might give it a try will the bb range
Life is a school for the soul
  • #8
  • Dec 17, 2009 3:18am Dec 17, 2009 3:18am
Quoting smikester
On this chart you can see Donchian channels. I like them because they roughly define s/r on any given time frame but here they define the range. You don't need to use them you can see it. Just look at the grey box.

Attachment

So, which way is it going to break out? We look for price action and a host of other things but for me the most important is the higher time frame trend which, in this case, is down. We wait for a closing bar below this box. It should be a nice close, not with long dangly bits which only prove it didn't want...
BTW, one question. Isn't that just the same concept as an inside bar formation??
Life is a school for the soul
  • #9
  • Dec 17, 2009 4:22am Dec 17, 2009 4:22am
Yes, it is. Obviously, inside bars are a form of price compression. DIBS trading (see thread All the coffee you can drin...) is a form of this and the principle there being you can get into a major trend with a very small stop loss if you choose the entry carefully.

This is not price compression but an example of how to get into a major trend or in this case trend change, but with a small stop loss: http://www.forexfactory.com/showpost...ostcount=48470

This is how I try to trade. I can get lots of losses, but they are small. I rarely risk more than 1% of my account on a trade.
Gone to a better place
  • #10
  • Dec 17, 2009 4:53am Dec 17, 2009 4:53am
Thx again Smik

I will go and check out DIBS now.
Life is a school for the soul
  • #11
  • Dec 18, 2009 2:25pm Dec 18, 2009 2:25pm
I have been through James16 and other trading methods including have 6 indicators on my charts while I was reading Fibonacci and trendlines etc.

You mentioned two things in your first post - indicators and S/R.

Support and Resistance only hold if momentum is in the direction where it "pings" off of them. In other words if price is trending up toward resistance but momentum is down then you can be fairly certain that price is going to rebound off that resistance level. Just because there is resistance or support does not mean current price will respect it. So while you may have thrown out indicators (you only need one) you might want to learn to read them in respect to S/R and momentum.

Before you do (should you choose to explore) you should not trade momentum indicators based on Welles Wilder's findings. Look for data that discusses it from the point of view of Andrew Cardwell and or Constance Brown. Their use of RSI, MACD, etc is not based on "overbought, oversold or divergences and the 50% line."

If you go back to James16 for you entry method (say a pin bar) and you look at support and resistance there is only one other thing to check. The direction of momentum. If you read this right you will filter out many bad trades.
  • #12
  • Last Post: Dec 21, 2009 10:33pm Dec 21, 2009 10:33pm
Quoting pdean123
I have been through James16 and other trading methods including have 6 indicators on my charts while I was reading Fibonacci and trendlines etc.

You mentioned two things in your first post - indicators and S/R.

Support and Resistance only hold if momentum is in the direction where it "pings" off of them. In other words if price is trending up toward resistance but momentum is down then you can be fairly certain that price is going to rebound off that resistance level. Just because there is resistance or support does not mean current price...
Thx pdean. So the concept is "if momentum is up, the R become a place to trade breakout. But if momentum is down and somhow reach the resistant, it become a possible reverse point?"
Life is a school for the soul
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