When do you not trade a breakout? | Forex Factory

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When do you not trade a breakout?

  • #1
  • First Post: Jun 16, 2017 8:45am Jun 16, 2017 8:45am
Hi,

I am toying with incorporating a more traditional breakout system but there is one major problem i keep running into.

That is when a bar breaks and closes above a clear support/resistance level/channel(whatever you want to get the breakout on) to instantly go back into that channel taking out your stop.

I know there is the method of waiting for a break, then a retest of the level to see if it holds but ofcourse that also means you will miss out on those moves where a break does continue.


Is there anything that can be done to tell when a breakout bar should be traded and when it should be avoided?

Thanks.
  • #2
  • Jun 16, 2017 3:01pm Jun 16, 2017 3:01pm
Quoting StavFx
Hi, I am toying with incorporating a more traditional breakout system but there is one major problem i keep running into. That is when a bar breaks and closes above a clear support/resistance level/channel(whatever you want to get the breakout on) to instantly go back into that channel taking out your stop. I know there is the method of waiting for a break, then a retest of the level to see if it holds but ofcourse that also means you will miss out on those moves where a break does continue. Is there anything that can be done to tell when a breakout...
false breakouts are inevitable so it is the cost in catching a strong trend
You came here for the truth and let me unveil it for you
  • #3
  • Edited 3:29pm Jun 16, 2017 3:07pm | Edited 3:29pm
Sure. Stop trading support/resistance and start trading probability. Those lines you create are based on historical trades. Those trades are over. Finished. How can you trade yesterday's trades today? Does the market just repeat itself day after day on your platform? The other reason price retraces on you, and you do not know it will happen, is because the sample size at your line break is 1, and that is the absolute worst value you can use to make a decision. You left the herd and got eaten by the lions. You need better analysis. Trading yesterday's movement when price breaks yesterday's line one time is kinda ridiculous, yes? It has nothing to do with the current market. Nothing. That is why you lose so often.

Now for a positive twist, nearly every break-out will occur for one of two reasons. These reasons are not bound by probability, so if you refuse to learn how to trade mathematically, you might consider modifying your template to observe these. One, there is a triangle pattern created on your graph, and eventually price will break-out of it. Two, high impact news will drive price in one direction or the other when it is announced. There are numerous reasons for being cautious when news is released, but when the smoke clears, there is generally a break-out in one direction. The problem though, again, has to do with probability. Price might spike, but if it is against the probability, it will return back to where it was prior to the release. Anyway, regardless of what happens after-the-fact, those are the two most common forms of break-outs.
You cannot be extraordinary by being normal
  • #4
  • Jun 16, 2017 3:18pm Jun 16, 2017 3:18pm
Brother, As per my experience
(i) Don't try to catch a train which has already left the station. Wait for some retracement.
(2) Before Jumping into a breakout trade, validate the breakout in context of fundamentals. Was there a reason that price breaks through a support/resistance. This will g give you a good idea that the breakout will hold or not.
(3) Try to observe the pressure of price. i.e where its trying to go to. upward or downward. for example in bullish breakout, look for candles producing lower wicks and closing upward. If pressure is in same direction where the breakout just happen then most probably its a good trading situation.
(4) Don't fire all your bullets all it once. suppose you want to take a position of 1 volume. Divide your trade volume in portions. Lets say you divide your volume into 3 portions. Keep opening your trades with the divided volume until the breakout is valid.
(5) Personally, I am not fan of SLs. My mind just have a negative smell of it. I let the price to play around and close my trades manually when i feel that my decision was wrong. I know the negative side of not using SLs but this is what which suits my trading style.
Forex; the game of movements not the game of candles.
  • #5
  • Jun 16, 2017 3:23pm Jun 16, 2017 3:23pm
A point that i missed. Bar closure above a support resistance does not mean anything. Don't base your trade on a single candle. Base your trade on complete movement over the breakout level (i.e few candles over broken level). Believe me you are not going to miss the trade. you will get good opportunities to book your seat in the train.
Forex; the game of movements not the game of candles.
  • #6
  • Jun 16, 2017 3:34pm Jun 16, 2017 3:34pm
Quoting StavFx
Hi, I am toying with incorporating a more traditional breakout system but there is one major problem i keep running into. That is when a bar breaks and closes above a clear support/resistance level/channel(whatever you want to get the breakout on) to instantly go back into that channel taking out your stop. I know there is the method of waiting for a break, then a retest of the level to see if it holds but ofcourse that also means you will miss out on those moves where a break does continue. Is there anything that can be done to tell when a breakout...

There are quite a few conditions that must be taken into consideration for the probability to be in your favour.
R:R "Percentage Focus"
  • #7
  • Jun 16, 2017 3:35pm Jun 16, 2017 3:35pm
no one knows. Sometimes it works sometimes it doesnt.
  • #8
  • Jun 16, 2017 3:39pm Jun 16, 2017 3:39pm
Quoting StavFx
Hi, I am toying with incorporating a more traditional breakout system but there is one major problem i keep running into. That is when a bar breaks and closes above a clear support/resistance level/channel(whatever you want to get the breakout on) to instantly go back into that channel taking out your stop. I know there is the method of waiting for a break, then a retest of the level to see if it holds but ofcourse that also means you will miss out on those moves where a break does continue. Is there anything that can be done to tell when a breakout...

No way to avoid it, false breakout is part of the breakout trading, then you should maybe just trade the false breakout.

anyway don't trade both side unless it's taken in your risk vs reward.

The real winners will break one way and won't look back, most of losers will go sideways.
LDFX Trading Ltd
  • #9
  • Jun 16, 2017 3:53pm Jun 16, 2017 3:53pm
don't trade a breakout if market reject on the other side of breakout line is not true
BullShit BearShit
  • #10
  • Jun 16, 2017 3:58pm Jun 16, 2017 3:58pm
area that i keep away is what some called 'no mans land' because i feel the price is jumpy and ready to turn back.
i would choose bounce over breakout, every time. and if i don't think it will bounce then and only then i will think it will break out.
  • #11
  • Jun 16, 2017 10:27pm Jun 16, 2017 10:27pm
stay away from systems that cant be backtested like breakouts, trendline systems etc... they are what i call "Fools Gold".
I am what Many Dream to be but only a few can achieve, im a part of the 1%
  • #12
  • Jun 17, 2017 1:48am Jun 17, 2017 1:48am
When I don’t get pre-breakout signs then, I am not going to use this trading setup! No doubt, breakout trading setup is very advance setup, so I need 100% confirmation from to my trading strategy or system, I need clear market context for breakout trading!
  • #13
  • Jun 17, 2017 3:00am Jun 17, 2017 3:00am
When NOT to trade breakouts?? Always.

The WORST trading strategy there is. Risk reward is atrocious. You give up all leverage. Expectancy is one thing, risk management is another. You need both.
  • #14
  • Jun 17, 2017 3:27am Jun 17, 2017 3:27am
There are far too many variants to be able to answer this question. For example, which way is momentum? Where are the big moving averages such as the 100 and 200 sma? What are the higher time frames showing? Are you trading into support or resistance....the list goes on. No two breakouts are ever the same, and very often a break out gets you into a trade far too late, and so therefore the risk of getting stopped out is quite high.

The best piece of advice I can give you in a few short words is - trades with momentum behind you are the highest probability trades, tops and bottoms are far more difficult. Also this - BUY THE VALLEYS AND SELL THE PEAKS & TRADE AROUND THE EDGES.

See my thread ' The Trader's Academy '. There is a lot of useful stuff on there by different people. Also ' The big secret to trading success ' is worth a look in as well, although I don't post anymore myself. I have various other threads on all aspects of trading as well, so worth checking out my homepage.

God luck my friend. It's a long hard road, but you'll get there if you do the right things and stick with it.
  • #15
  • Jun 17, 2017 3:34am Jun 17, 2017 3:34am
When it's going against the trend, the day...or there isn't a clear direction in the currency.

Trading breakouts is fine, but there seems to be little point in trading a breakout reversal in terms of success rate.
  • #16
  • Last Post: Jun 17, 2017 8:54am Jun 17, 2017 8:54am
I didn't have success with a breakout strategy. I am not saying that it doesn't work, but it is tricky. Most of them fail because they are obvious to everyone and big money knowns this and tries to fade almost every one of them to burn all the newbies hoping for a continuation. It's probably safer to wait for a retracement if you are going to try and use the strategy. I have just found that obvious market patterns fail most often because everyone else can see them including big money and they will take advantage of this by fading the move more often than not.
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