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Box trading, how to avoid fake breakouts?

  • #1
  • First Post: Dec 24, 2010 3:36pm Dec 24, 2010 3:36pm
So I'm studying box trading. From what I understand, find a range draw a box around it and trade in a direction of a break. Stop behind the box with tp being the size of the box away from the break, or trail behind future boxes that form if a strong direction develops in the favor of the trade.

The problem I see is how to avoid fake break outs? Just trading any break would be aggessive, but prone to false breakouts before the actual breakout, or even total reversals to the otherside of the box. I've thoght of a couple ideas.

1. Whatever time frame you are trading must close outiside the box for entry.
2. Wait for a break, retest of the edge of the box to show it is now support and enter at continuation.

If anyone trades boxes and can give me their input it would be much appreciated.
  • #2
  • Dec 24, 2010 6:35pm Dec 24, 2010 6:35pm
This may help:
http://www.forexfactory.com/showthread.php?t=17350

But you will always run into the problem of 'which box should I trade?'
  • #3
  • Dec 24, 2010 7:31pm Dec 24, 2010 7:31pm
For the fun of trading or gambling, i will trade upside and downside breakout.

For making profits, i will only trade breakouts in the direction of the trend in Daily and Weekly charts. The probability of winning is higher, at least that's what i have been experiencing.
福 子 Victor V
  • #4
  • Dec 26, 2010 12:38pm Dec 26, 2010 12:38pm
Quoting camvcvoo
For the fun of trading or gambling, i will trade upside and downside breakout.

For making profits, i will only trade breakouts in the direction of the trend in Daily and Weekly charts. The probability of winning is higher, at least that's what i have been experiencing.
Well said, as traders its a must to put the odds in our favor. It is no longer gambling but a business.
  • #5
  • Dec 26, 2010 1:32pm Dec 26, 2010 1:32pm
I think there should be a good reason for correct breakout.

For me on H1 time frame, session break out is a good sign to join the session. There are many fundamental reason that could cause a correct breakout but for me session breakout is simple and works.

Also I think you need to check the market after breakout, if it is weak, I don't think it is correct to stay in the trade.
  • #6
  • Dec 27, 2010 8:51am Dec 27, 2010 8:51am
Most boxes will have a fake first, selecting tradeable boxes right at pivotal support/resistance and trading with the next higher TF trend will avoid most fakes. Finding a pivot within a range will also help you in finetuning your entries, they work the same as a daily pivot would work, you will need to take your tick data in a database or spreadsheet to calculate them, alternatively you could eyeball the pivot of the range roughly and play of that.

A good momentum bar takes care of any fake out. A fake is usually followed by a test followed by the alternate SR, so if support is the edge of the box, it should be tested as resistance, unless a momentum bar precludes that, in that case you should have an accumulation/trust phase in the price.

Knowing your price patterns is paramount to succesful PA trading, and having secondary triggers and targets outside the box is key for continued moves.

This is very general, PA trading cannot be taught or learned from one post and needs some serious time and dedication to master.

There really is no set rules to spotting fakes and confirmed breaks, it is all in the price.
  • #7
  • Dec 27, 2010 8:55am Dec 27, 2010 8:55am
Quoting cloggie
Most boxes will have a fake first, selecting tradeable boxes right at pivotal support/resistance and trading with the next higher TF trend will avoid most fakes. Finding a pivot within a range will also help you in finetuning your entries, they work the same as a daily pivot would work, you will need to take your tick data in a database or spreadsheet to calculate them, alternatively you could eyeball the pivot of the range roughly and play of that.

A good momentum bar takes care of any fake out. A fake is usually followed by a test followed...
thanks cloggie
  • #8
  • Dec 27, 2010 9:19am Dec 27, 2010 9:19am
wait for PA bars on edges/retest.
.
  • #9
  • Dec 30, 2010 6:04am Dec 30, 2010 6:04am
Quoting KumoDragon
The problem I see is how to avoid fake break outs? Just trading any break would be aggessive, but prone to false breakouts before the actual breakout, or even total reversals to the otherside of the box. I've thoght of a couple ideas.
Try using a filter to qualify good valid breakouts from fake ones. It was already mentioned to take breakouts in the direction of the trend. That's a filter in it's own that can be used to eliminate fake or bad breakouts. Still you can research other filters.

Best Regards,

Nader
  • #10
  • Last Post: Jan 6, 2011 10:22am Jan 6, 2011 10:22am
Quoting camvcvoo
For making profits, i will only trade breakouts in the direction of the trend in Daily and Weekly charts. The probability of winning is higher, at least that's what i have been experiencing.
Just a simple example of trend trading. Simple but lethal.
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