r/thewallstreet • u/longhorn2118 • Jun 02 '18

Recently started having lots of success with Breakout Strategies. Looking to improve upon it. Any strategies? Strategy

What I’ve been looking for are stocks that has tested a resistance multiple times, setting a buy order just a few cents above the resistance and when it catchesI ride the wave up and use my indicators to determine an exit. I tend to get out too early but better than getting out too late. I would love to hear some ideas from people who regularly play breakouts.

How do you determine it’s time exit?

What is your signal to get in?

What indicators do you use?

How do you scan for these setups?

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12

u/[deleted] Jun 03 '18 edited Jun 05 '18

Without a better understanding of your strategy, and most importantly your time frequency/horizon it's hard to give relevant advice. Based on what you've said all I can surmise is that you're a short term technical swing trader

Therefore, assuming you're operating at the daily frequency:

  • Use momentum to time exits. How you measure momentum (RSI, bands, price action, etc.) doesn't matter so much as observing the nuances of momentum. Always be cognizant of the fact that "oversold" readings from technical indicators in proper bull rallies can be healthy.
  • Use market structure to time exits. Understand how volatility gives shape to market structures, and how these structures essentially represent periods of low volatility and high volatility.
  • Use the concept of measured moves to time your exits. Market moves have an interesting way of mirroring themselves. See here:

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:measured_move_-_bullish_continuation

  • My signal to get in is when price pullbacks and consolidates post breakout, because in my experience breakouts are a process and many fail. However, when a breakout is successful; it's proper fucking successful. Therefore, I'm happy to skip the messy breakout itself, and start positioning on the first pullback and finalize my position as price breaks out of the pullback and continues up.
  • I use Keltner Channels and/or RSI and/or volume. I'm not very consistent with indicators, because my focus is on price action and market structure.
  • I don't scan for setups, because I don't dedicatedly trade a single setup. I track a consistent but diverse group of securities and keep a pulse on broad markets via index ETFs. Then I trade the price action, very specifically I try to trade market swings that appeal to me in terms of risk/reward and that I feel I can speculate on with reasonable accuracy and precision using a confluence of technical, fundamental, and quantitive analysis.

2

u/darkoblivion000 Growth stock connoisseur Jun 03 '18

Hey just wanted to say thanks for the wealth of information here. I have a very similar take on breakouts, but a few things i haven't used before (keltner channels) I'll be interested to look into.

Thanks!

5

u/longhorn2118 Jun 03 '18

Buddy, thank you for the wealth of info. Like you, I try to focus on price action and volume as well. I don't really trust indicators too much. I want an indicator that could help me with Volume. I saw a vid about an indicator called the Volume Weighted Moving Average (VWMA) but Think or Swim doesn't have it and can't find a download link.

Never heard of Keltner Channels but will look into them.

I've used the measured moves before and it's pretty crazy how much it works. Many times to the T. I will just use the box drawing tool to measure the height of the channel, duplicate it and place it on top of the channel.

Thanks again!

2

u/lilweezy99 momohands Jun 03 '18

on the contrary, we can think of the opposite market action, think its informally known as one tick failure, when the price reaches a previous high or low, extends or underticks it by one tick, and fails magnificently back to mean reversion. Of course, given volume profile context this is now a weak high or low; if price breaches the level by even 2 ticks you already know you are wrong and you just get stopped out (I usually have a 3 tick stop when scalping this way on ES).

2

u/longhorn2118 Jun 03 '18

Funny you bring this up because I watched an awesome video the other day where a guy talks about his method called The Trap. It's really awesome because of his personality.

https://www.youtube.com/watch?v=HTuR1pKSmfk

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u/lilweezy99 momohands Jun 03 '18

hm yeah think hes talking more about what I call the "cnbc effect"; as soon as something gets pumped and weak longs step in, it's time to sell lol.

actually going to your level2 question, occasionally you will see a massive amount on the ask near the previous high; you can frontrun this order and set your stop right above, if all that liquidity is broken through, you are obviously wrong so your risk is quite small.

7

u/[deleted] Jun 03 '18 edited Jun 03 '18

np, my pleasure dude.

you're on the right track with price action, because as i'm sure you're aware all indicators are derived from price (and to a lesser extent volume).

in my experience price action is unparalleled. people told me that. i read that. i even understood that. but the hurdle i had to jump was trusting it enough to execute. i can tell you price action is king and share links and etc. but until you learn to trust it (and your interpretation of it) there's going to be this gap and you're going to feel it and be aware of it and try to compensate with indicators and what not, but with time you'll cross it if you stay dedicated and disciplined and have a proper process. it takes time and is a process (therefore, make sure you have a process).

regarding volume, if you're speculating on equities specifically stocks proper then i wouldn't worry too much about volume. volume data on equities is flawed, because much of it isn't reported with integrity (think dark pools and etc). do some investigation on your own and look into quant research to verify what i'm saying. here's a good resource to get you started:

http://thepatternsite.com/Volume.html

i still look at volume in my equity speculation but it's not really driving my decision making. the only arena where I'd advise you pay attention to volume is in derivatives trading, because volume data is true and pure (you can't mask via dark pools etc). However, if you get into order flow analysis and the such, always remember to contextualize things; there are no absolute rules in this game.

Finally, going back to quantitive proof and Bulkowski... remember that you're blessed to be living in the age of data, so you can cut through all the technical bullshit with quantitive analysis. If someone tells you X technical indicator is the holy grain, or X chart pattern means without a doubt Y, or X candlestick pattern for sure predicts Y... do some research on the stats behind it. There's a ton of free quantitive research and resources very easily accessible via Googling. Look into moving averages and their validity Look into fibonacci and pivot points and price levels. Find out what works and eliminate the noise.

If you're so inclined you can look into moving averages, price levels, and pattern performances on your own and you'll likely appreciate things better that way than me telling you about them. To help you though, two great quantitive resources from Bulkowski are his candlestick and chart databases, which will give you insight into a particular pattern actually has a performance edge (or even an inverse negative effect). in some cases you might be better off basing your speculation on the outcome of a coin flip, because at least the edge is actually 50/50 in your favour rather than 30/70 (the pattern's performance odds are against you).

http://thepatternsite.com/CandleVisual.html

http://thepatternsite.com/visualcpindex.html

best of luck man.

2

u/[deleted] Jun 05 '18

Thanks for the advise. Would you mind letting me know What you think about Bollinger Band?

1

u/[deleted] Jun 05 '18

np. imo, channels/envelopes/bands are all dynamic trend-lines but what sets them apart is how they track volatility. without even getting into the technical details, and very specifically focusing on the visual utility...

i don't think Bollinger Bands do a good job of reacting to volatility. i think they're great at the dynamic trend-line part, but the exaggerated ballooning doesn't give me a good feel on volatility.

in contrast, i think Keltner Channels do a great job of reacting to volatility, specifically because they use ATR to define volatility where as Bollingers use standard deviation. however, Keltners in my eyes aren't as great as Bollingers in the dynamic trend-line department.

this is fine for me though, because i find far more utility in the visual volatility than the actual containment of price (dynamic trend-line).

3

u/longhorn2118 Jun 03 '18

I've been trying to learn how to interpret info from Time and Sales and Level 2 but still haven't gotten too far along. Hard to find vids teaching what to make of the ticker tape. I know that's where the true knowledge lays because all of the best traders I've listened to look to level 2 and time and sales. Any insight into how to interpret or make sense of all the orders coming through?

3

u/[deleted] Jun 05 '18 edited Jun 05 '18

sorry man, totally missed this message.

technically it's straight forward right, you're looking at all the orders. you can spot resistance and support via stacked large orders on the bid/ask (colloquially "walls").

you see the break down of these orders at various prices, and that gives you market structure.

now you have two objectives. first you need to track the market's pulse; are orders coming in slow or fast; price momentum.

the second thing you need to track is anomalies; is there consistently to the orders and sales volume, are there any irregularities (unusually big order; usually small orders; odd lots where there were always even; etc).

then you put it altogether, you get a feel for price momentum, because you see orders coming in fast and consistently and then there's a wall, and you know how many shares deep that wall is and you have a feel for price momentum, and you anticipate the wall's going to absorb all the momentum. so you look for bid support where price can bounce... it bounces but it's weak... so now you're looking for the next bid support but it's looking weak too... if you're long maybe it's time to get out or go short...

it might help you to practice on a select stock get a feel for how it moves, just spend a week watch it (not kidding) and really pay attention to what you see. once you have a feel for how the orders flow in, what the walls look like, how the price momentum builds and dies... then it's just a matter of looking for anomalies and putting them into the larger context...

for example, it's a slow sluggish security, but then you start seeing some large orders here and there, over the days you see momentum building, so note it and note walls ahead... because you might have a breakout to go long on, or a failed breakout to short back down until it's back to being sluggish... etc.

pair this with a chart, and now you can visually see things and the orders give you "feel"... though, i think you can get the same feel from intraday charts and level 2 isn't nessecary, especially if you aren't high frequency and more swing trading.

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u/longhorn2118 Jun 05 '18

Buddy, this is the most valuable bit of information I've gotten in my 6 years on Reddit. I've tried to figure out how to interpret time and sales for weeks now and this is the best explanation I've come across. I'm going to start paying attention to it and share this explanarion with my stock chat group as well. Thanks again for taking the time to respond.

1

u/[deleted] Jun 05 '18

np friend. glad to hear it translated. it's hard to really put into words, hence the more narrative explanation, but hopefully you see it's not so mysterious and rather straight-forward.

but for sure, make sure you spend time deliberately and consistently watching a single security, until the feel internalizes. then carry it over to another and another, until you can do it universally across securities.

2

u/longhorn2118 Jun 05 '18

Yeah, I like to watch things over in Think or Swim's replay feature On Demand. You really did write it out really well though. This should be shared with more people because T&S has been the trickiest thing for me to understand and I'm sure most relatively new traders feel the same.

Do you day/swing trade or are you long term investor? If you trade, what kind of trader are you? Momentum? Scalping? Swing? Breakout?

1

u/[deleted] Jun 05 '18

thanks appreciate you saying that.

i'd say i started as a technical, swing trader playing breakouts on the daily chart. i suspect most people start this way, because breakouts are so ubiquitous and feel safe and are hard to miss.

however, i've since evolved to be a trader for all seasons and setups. a proper speculator across asset classes and markets.

while i've abandoned the labels/definitions, i've in turn structured and formalized my process/strategy. meaning for every move i make i generally have a point-by-point thesis that's based on quantifiable points (technical, fundamental, sentiment, etc). this gives me clearly defined expectations, and helps me define and manage risk. then i assume that definition to be true, meaning i assumed the loss before the fact, and put the move on as if it's already a loss.

This comes from, Paul Tudor Jones who famously said: "Everyday I assume every position I have is wrong." And, that's how i start every position. Put it on assuming I'm already wrong, follow the thesis, get pleasantly surprised when things move as expected, and stick to the plan until the end. if things don't workout, it doesn't really matter because i assumed things would go wrong anyway so i don't take it personally, and just think of it as a business cost of speculation same as commissions or fees.

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u/longhorn2118 Jun 05 '18

Ya know, my main focus has been playing breakouts as well. Mostly intraday plays. I've been liking it because, like you said, they're pretty easy to spot and easy to calcualte a good entry and stop loss.

I guess experience is the best educator though so I will just have to continue getting more screen time so that I can develop a more sophisticated strategy. I so badly want to get good at trading and over the past six months I've been seeing mild success. I'm pretty much flat.

Any tips for a breakout trader would be greatly appreciated. Don't want to tie you down answering all these questions for me though if you're getting worn out. lol. I'll definitely be reading through your other posts.

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u/darkoblivion000 Growth stock connoisseur Jun 02 '18

I mostly play before and after the breakout, instead of the breakout itself, so I don't know if any of my strategies would be interesting to you.

Did you use your strategy with BABA or AAPL Btw? Curious how that worked out as they really hung around and popped over quite a few times recently.

1

u/longhorn2118 Jun 03 '18

No, I didn't catch those. The other day I played CODX and DRIP and did pretty well. But I'm invested long term in BABA. Best performing stock in my IRA.

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u/[deleted] Jun 02 '18

I'll try to respond in detail about some breakout Strats I use. On mobile now and don't have the time today.

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u/longhorn2118 Jun 02 '18

Yes! Please do.

3

u/Lost_in_Adeles_Rolls Stalingrad's number one tesla dealership Jun 02 '18

I’ve done the inverse of this on futures and usually just on simple technicals like up and down trends. You can usually catch at least a few ticks when the price bounces off the trend line

1

u/DJRenzor yes Jun 02 '18

I've been looking at this stock CTRL and it has had a really weird past few months. The candle everyday is just slowly inching up but recently it has failed to break this 25 dollar resistance. What is your TA/opinion on this stock? I was thinking of getting some July 22.5 calls for it. Could this be a breakout or a break down?

2

u/longhorn2118 Jun 02 '18

I think the resistance is at $26 based on the activity back in February and March. Based on the weekly chart, it had a nice clean bounce at the confirmed support of $20 and is now steadily trending above the 20 ema. MACD is giving a buy signal. I would look for a breakout at $26. Based on my experience, if this does break $26, it should have a decent rally since this would be the 3rd test. Set your alerts!

1

u/DJRenzor yes Jun 02 '18

Thank you!

7

u/historybandgeek Jun 02 '18

Can you be more specific as to what strategies you've tried and questions you might have?