October 12, 2011
- in Uncategorized by schooloftrade
Breakout Strategies; when to TAKE it, and when to FADE it
Fade = to sell at resistance as price rises, to buy at support as price falls.
· As price breaks out to new higher-highs I will look for overhead resistance and sell.
· As price breaks out to new lower-lows I will look for support below and buy.
Who: traders of all shapes and size, swing traders, day traders, scalpers, anyone.
What: price breaks out, we look for the levels of support or resistance above us and then look for an entry pattern around that area.
Where: you only take trades at existing levels of support and resistance.
When: you only take trades when you see a price pattern. So you cannot simply buy or sell at the level of s/r, you need a pattern
Why: something in the personality has already told us to sell as price rises, to buy as price falls.
Most common reasons to fade the breakouts:
– Market personality, we keep seeing fake-out breakouts
– Personality is easiest to define for a fake-out breakout with
o Price Wedge
o Narrow sideways range
o Dollar index is in a price wedge
The trigger for the ‘fade’ is very simple…look for the 3 signs of a price reversal to tell when to take that next trade fading the breakouts.
Wrap it all up:
First clue comes from the 89range chart and the price structures, these tells you if this should be a breakout day or a fake-out breakout day.
Second clue comes from the dollar index. If the dollar is price wedge, you can assume the same for the markets you’re trading, so the likelihood of a fake-out breakout is much higher.
Third clue comes from the 3 signs of a price reversal. Once you see these 3 signs of price reversal than you know it’s time to look for a patter.
Fourth clue is the entry pattern using a faster timeframe we then look for the correct counter-trend entry pattern and our entry rules need to trigger the trade entry.
Dollar correlation, how does it work?
It’s a negative correlation, and the way it works makes sense.
The US Dollar is the world’s reserve currency, so any global business needs to HEDGE their dollar risk with other currencies.
Example:
– Tomorrow the US Dollar gets less valuable.
– Things in the US are more expensive
– Things become more SCARCE (harder to afford)
– Supply is less, which means demand is more
– Demand rises, so does price
There are two reasons why this correlation breaks down:
– Fear: when people are scared of missing something opportunity they do things outside of the norm
– Low Volume: anything can happen at any momentum because there’s nothing keeping the buyers and sellers consistently moving in one direction or the other.
–
Price channels, how to trade them (Scott)
Bear Price channel sell the highs of the price channel, sell the resistance above the highs, and beware trying to force short trades into the LOWS of the bear price channel.
When does the OPEN act like a Magnet (David)
When the volume drops, gets lower, and we can tell there is no strong market personality.
When traders do NOT have a strong directional bias they tend to gravitate towards the ‘magnets’ such as the Open, BMT, trend lines, etc.
Remember the direction of your trade BEFORE you take it to account for the MAGNET.
Entry timeframes
We use every chart to enter our trades, all we need is a pattern.
Where does the entry pattern show up first? That’s where I take the trade.
Conservative trades use the 21 and 13 range charts for patterns (so does fast track)
Aggressive scalp traders use the 4 and 8 range charts for very quickly entries and lots of patterns.
Did we use Friday’s highs/lows or Monday’s for the PHOD/PLOD today?
– We used Monday’s b/c the markets were indeed open all day
