Saturday, March 24, 2007

Back to the drawing board: Breakout trading



Breakout Strategy

I am going to put my effort into learning how to trade breakouts. Why do I like this setup? It’s fast and happens in the first 5 minutes of trading. It will provide me with some profits at the start of my day. If I do well, I know I can continue to trade in a discipline manner for the rest of the day.

I started dummy trading on gaps in January. I thought I was catching on when I had some good days. In February I had a lot of losing days and I began to have some doubts. A lot of my weaknesses began to appear and I lost confidence. This month has also been tough. What bothers me is that I have not done anything to fix this situation. I just sat on my ass thinking that I can trade my way out of this slump. I have been doing the same thing everyday without any progress. I need to take action and start studying again.

One of my big weaknesses is the lack of patience. Trading gaps using dummy entries require good patience and stock selection. I found out that I like to be in quick moves and I want to get some good trades by 10am. As I wait for the gappers to setup I get tempted by my trading demons. Most of the time I end up going into impulsive trades because I crave the action. I am not going to abandon trading gaps. I will still observe and maybe put on some trades that look good.

From observing the markets daily for the past few months, I see these breakouts happening very frequently. I see a couple everyday.

Check out Pinoy Trader's blog and learn from him. He has a lot of examples of breakout trades. High Chart Patterns also use this strategy and you can find good insights in their blog.

Please feel free to leave any comments. I am a beginner in this strategy. Any insights would be very helpful.


Tyro said...

I'm trying to trade breakouts, as is Bubs. From what the HCP Group and Pinoy have said, the way to spot them is to look at lots and lots of charts (Pinoy looks at 600 charts after trading, and HCP look at around 300) and make a watchlist of stocks that could break out over the next day. From there is the trick of catching the breakouts when they occur.

You can check out Pinoy's and the HCP Group's interview on StockTickr for more details on they styles. It looks like Pinoy places stop orders to get him in when price breaks. For me, I visually scan through my watchlist looking for the volume movers. It seems to be working, but I'm still very new to the game.

Good luck.

bp said...

I left a comment for you about this, some how I put it in the wrong place, see it on your friday entry.

Glenn said...

You are more than welcome to join us in our trading room, we have some really great traders, lots of action and great calls made everyday.

onebadtrade said...

Thanks for sharing BP. I will observe the setup you mentioned.

Thanks Glenn. I will stop by next week.

About Me

I have been trading for 5 years. It took close to a year before I became profitable. I find that I am improving gradually each year. My method of choice is scalping. My edge lies in tape reading NYSE stocks and staying on the side of the specialist. That is the method I learned when I started. As I build up my capital I will try new styles and trade new markets. In late 2006 my trading hit a rough patch after the introduction of the NYSE Hybrid system. For most of 2007, I have been on a search for new strategies that would help me adapt to the market.