A Breakout Strategy

A very common trading strategy is to trade breakouts from sideways consolidations. There is an almost “foolproof way” to avoid being caught with outbreaks that fail. Well, of course nothing is “foolproof”, but here is an idea that helps to avoid many mistakes. Just let the symbol break out clearly and then go Long or Short after the first pullback in that time frame as soon as the breakout is confirmed.

It is a strategy that you can apply immediately once you are aware of the strength of this approach. You may have heard of this concept, but you may not be aware of its power. Most traders are probably not fully aware that breakout games are associated with a high fail rate. Approximately 72% of breakouts from sideways ranges go wrong and thus into loss.

This is especially true if you don’t know what kind of outbreaks you are dealing with. There are many ways to trade outbreaks. Today we will talk about the “safest” way. Below is a 15-minute chart of EURSEK.

If every game were played in the same way, there would be no reason for this article. However, if you trade them regularly, you will already know that symbols that break out of consolidations do not always lead to the target.

The blue arrow indicates that the symbol breaks out of a consolidation. This is the typical point where most traders buy/sell a breakout. There’s nothing wrong with that if it’s the right kind of consolidation. However, it is often difficult to say what kind of consolidation you have in front of you, and even a good breakout sometimes fails. If the breakout game works, the blue arrow entry is often the earliest entry point. But you will also be involved in any false outbreak.

By letting the symbol break out first and then watching the first pullback, you have the opportunity to completely avoid getting in if the symbol then retreats too far or runs in the opposite direction and the trade becomes a failure. We want this symbol to find support/resistance and confirm the breakout before entering.

As soon as the first pullback comes into contact with the SMA20 or SMA8, as we see in the charts, it becomes interesting.

In the LocationPoint jargon we talk about Trampolines, TwentyTrain or EightTrain setups that work equally in both directions.
Another advantage of using the pullback method is that your entry into the trade (and thus the risk) is almost always narrower than in the original game – which is one of the great advantages of LocationPoint Trading.
While you enter at a later time and at a slightly more distant price, your risk behavior will usually be much better, as the tight stop on the buy, which was aligned on the pullback retracement, usually offers a much tighter stop and thus allows a much higher order size

One more thing. You may be wondering which TimeFrames this works in and how the entries must be finally placed to get into these trades or why a later entry can yield more profit than an early breakout trade.
The LocationPoint package with its 20 hour training program provides detailed information on this topic.

Disclaimer:
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. Hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. All information on this website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold this information harmless in any and all ways.

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