What you think you know about trading is wrong! Dear ,True Statement: “What you think you know about trading is wrong!” I’m not talking about EVERYTHING you know, but one thing is for sure: What you think you know about breakout trading is wrong! If you go to Google right now and type in “Trading Breakouts”, you’ll find over 18 million hits. The first one is titled “The Anatomy of Trading Breakouts” on Investopedia.com. The article promises to “walk you through this trading strategy from start to finish”. The problem? Well… pretty much everything… If you follow the strategy as laid out in the article, which happens to be THE MOST POPULAR way to trade breakouts and is also the strategy briefly discussed in the second Google link, you’ll quickly find out why in the third link that pops up on Google focuses on “Reasons Not To Trade Range Breakouts”. The reasons not to trade range breakouts listed in the third article, which, interestingly enough is on the same site as the first article, are as follows: False BreakoutsCorrections to Breakout PointExplosions are Rare Well, shoot… with these things against me, it does sound difficult to make money consistently with this type of strategy. However, that is NOT TRUE. In fact, I’ve PROVEN it’s not true by spending several weeks TRADING ONLY BREAKOUTS… PROFITABLY! How to you beat the odds then and avoid the cons listed above? First of all, avoid trading breakouts in a manner taught on nearly every website out there that teaches you to trade range breakouts. The second website listed on Google (babypips.com) under trading breakouts states that “With breakout trades, the goal is to enter the market right when the price makes a breakout and then continue to ride the trade until volatility dies down.” This statement is only partly true, and goes back to how many traders approach breakouts: They wait until “price makes a breakout”. As contradictory as it may sound, this practice is extremely highly risk and is the primary reason most traders will find this strategy to be unsuccessful in the long run. In reality, in order to trade breakouts successfully, you must understand the dynamics within the trading channel whose breakout you are hoping to capture. Waiting for a breakout to occur and then buying or shorting the security is like trying to hop onto a train that is already pulling out of the station… and you haven’t even purchased your ticket… In the chart below, the price action depicted between E and J represents one type of trading range or channel that you will come across in the markets. One of the techniques you can use to enhance your success in trading breakouts is to look for changes in momentum or pace within the range itself. In this example, the pace of wave J is substantially slower than the previous waves. This increases the odds of a break lower out of the range and is one indicator that would allow you to position yourself in the security prior to the initial impulse wave of the breakdown. In tomorrow’s Trading Made Simple boot camp
, I’ll be sharing the methodology I personally use for trading breakouts… and have used for the past 15 years. In addition to discussing the momentum timing as shown above, we’ll be going over Scanning criteriaEliminating high risk candidatesEarly entry techniques (before the train takes off!)Correct stop placement (because the stops most traders are taught on this strategy are also high risk!)Adjusting stops (including how to avoid getting flushed on pullbacks)Setting and adjusting targets and closing your positions Thursday’s 3-hour educational session begins at 12:30 ET, but you must be registered by 11:30 ET to attend live. This class will be recorded and made available to those that cannot attend in person or who register after 11:30 ET. To register, go to http://tonihansen.com/Daytrading101.html. I’ll “see you” there!All my best,Toni Hansen
http://www.tonihansen.comTrading stocks, futures, or forex is risky. Past performance is not indicative of future results. Understand the RISK before you trade.