Breakout trading - Misguided?

[AMR]

Hi all,

I have just read some backtested literature (Katz and McCormick) which found that breakouts have become progressively worse over the last decades. Markets are more efficient and produce a lot more fakeouts according to them.

Does anyone here trade solely on breakouts? Any thoughts?

My best trade ever was a breakout to form a new high and I had previously considered them to be a future bread and butter technique when I started trading again.

[STRAT]

Hi AMR.
Too much like hard work. Glued to the screen every day. Everyone talks about big gains but those gains should be devided into the hours spent too.
I do get a kick out of finding such a stock before it breaks though :D

[wbosher]

So with the market now seemingly going pretty well, looking for potential breakouts could be a good idea?

What are some of the things that we should be looking for in the current market?

I've noticed a quite few stocks lately that broke out a month or two ago (very strongly) and seem to be taking a breather now, is it a good idea to be watching these with a view of going up further or is it a better idea to concentrate on steady upward trends?

[Phaedrus]

Breakouts have become progressively worse over the last decades. Nothing is as good as it was, AMR. Whatever happened to the crispy bacon we used to get before the war? Markets do move a lot faster now and techniques need to suit current conditions. For example, the default RSI period was set years ago at 14 days, but most people accept that a shorter period such as 8 days is perhaps more relevant now.


My best trade ever was a breakout...Doesn't that say it all? You would be foolish to ignore one of the better TA buy signals simply because some people claim that breakouts are not as good as they used to be.



Too much like hard work. Glued to the screen every day. You need to move with the times, Strat. Avail yourself of modern technology. There are lots of alert services available - many of them free. Did you know that you can even have alerts sent to your cellphone or pager if you want? I have set up my own - for example, an upward breakout from a trading range flashes an on-screen alert message and blasts out a reveille trumpet call that would wake the dead. Similarly, any break below a trading range triggers a resounding fart. I have a library of .wav files featuring machinegun volleys, toilets flushing, screams, explosions, laughter, sobbing, Homer's "Doh" etc etc. In addition, some feature my own dulcet tones offering comments like "For God's sake man, BUY!" Hard work? Only if you're doing it wrong - it should be fun!



So with the market now seemingly going pretty well, looking for potential breakouts could be a good idea? The market is probably "going pretty well" because there have already been some good breakouts that you have missed, but looking for new ones is always a good idea.


What are some of the things that we should be looking for? Just the usual. Uptrending stocks. Unusual activity. Good announcements. Breakouts. Big increases in volume. Hot commodities.


I've noticed a quite few stocks that broke out a month or two ago (very strongly) Right. Aren't breakouts grand?


I've noticed a quite few stocks lately that broke out a month or two ago (very strongly) and seem to be taking a breather now, is it a good idea to be watching these with a view of going up further or is it a better idea to concentrate on steady upward trends?These are both good ideas. Why restrict yourself to any single approach?

[wbosher]

The market is probably "going pretty well" because there have already been some good breakouts that you have missed, but looking for new ones is always a good idea.

Yep, sure did miss plenty...not too happy about that, but wasn't sure what to look for a couple of months ago. I think I know better now. I've saved pretty much every single down trending stock on the NZX (and surprisingly there are still plenty of them) into a watch list, and set up automatic emails from DB when they break above a certain price, updating regularly.

Now I wait...:cool:

Also looking at stocks where I missed the original breakout, some of these look promising too as they kick up there heals for a while.

So many stocks, too little money. ;)

[dartMonkey]

Hey wbosher,
I read a book by Weinstein when I first started trading in August '07 - impeccable timing eh - and it covers breakouts. I'd suggest you get hold of a copy or PM me.
According to him, the best performing breakouts were after a significant rise, so, as you say, it might pay to keep an eye on those that have already risen. They seem similar to high tight flags. Look at FPA.
I like the breakout system because you know when it's not working and it's fairly easy to set a close, say 10%, stop loss. Also, some false breakouts seem to often get to 10% profit before failing, so one system is to sell 1/2 at 10% profit and then raise the stop loss.

[catbert]

Hi AMR.
Too much like hard work. Glued to the screen every day.

Wouldn't this depend on your trading time frame? I've heard of traders who use daily end-of-day charts or weekly charts to find breakouts ... they certainly aren't "glued to the screen"!

[wbosher]

Wouldn't this depend on your trading time frame? I've heard of traders who use daily end-of-day charts or weekly charts to find breakouts ... they certainly aren't "glued to the screen"!

I don't know how many of you out there do this for a living, but I for one still have a day job and have no choice but to use EOD data.

My boss would probably take a rather dim view of me if I spent all day watching the stock market. Doesn't stop me from trying though. ;)

[STRAT]

Wouldn't this depend on your trading time frame? I've heard of traders who use daily end-of-day charts or weekly charts to find breakouts ... they certainly aren't "glued to the screen"!Hi Catburt. I would have thought the whole point of trading breakouts is to maximize gains and that weekly charts would be behind the game. As you imply though there is more than one way to skin a cat in this game and pehaps one can teach a young pup in an old dogs skin new tricks.:D

Like wbosher this is a hobby for me and while I dont have a boss breathing down my neck I do have a business to run and a life outside the back room.

[STRAT]

You need to move with the times, Strat. Avail yourself of modern technology. There are lots of alert services available - many of them free. Did you know that you can even have alerts sent to your cellphone or pager if you want? I have set up my own - for example, an upward breakout from a trading range flashes an on-screen alert message and blasts out a reveille trumpet call that would wake the dead. Similarly, any break below a trading range triggers a resounding fart. I have a library of .wav files featuring machinegun volleys, toilets flushing, screams, explosions, laughter, sobbing, Homer's "Doh" etc etc. In addition, some feature my own dulcet tones offering comments like "For God's sake man, BUY!" Hard work? Only if you're doing it wrong - it should be fun!
Hi Phaedrus I should probably start with real time data :rolleyes: but
can you alert me to the better free services and the best paid for services you have found.
I would like to be dragged all be it kicking and screaming into the 21st Century please which is rather funny when you consider that when I first started playing this game this Century was already 6 years old :D

[Phaedrus]

Hi Phaedrus ...can you alert me to the better free services and the best paid for services you have found.Since I have no need for either, I have never bothered shopping around to find the best free or paid alert services, Strat, so I am in no position to make comparisons. Why don't you do a Google search or start a new thread asking what others use? Some people here might have tried several different systems and be willing to share their experiences with you.

[airedale]

P,I hope that you switch your phone off when you go to the theatre/movies:D
Too much like hard work. Glued to the screen every day.
You need to move with the times, Strat. Avail yourself of modern technology. There are lots of alert services available - many of them free. Did you know that you can even have alerts sent to your cellphone or pager if you want? I have set up my own - for example, an upward breakout from a trading range flashes an on-screen alert message and blasts out a reveille trumpet call that would wake the dead. Similarly, any break below a trading range triggers a resounding fart. I have a library of .wav files featuring machinegun volleys, toilets flushing, screams, explosions, laughter, sobbing, Homer's "Doh" etc etc. In addition, some feature my own dulcet tones offering comments like "For God's sake man, BUY!" Hard work? Only if you're doing it wrong - it should be fun!

[STRAT]

Since I have no need for either, I have never bothered shopping around to find the best free or paid alert services, Strat, so I am in no position to make comparisons. Why don't you do a Google search or start a new thread asking what others use? Some people here might have tried several different systems and be willing to share their experiences with you.Thanks Phaedrus, will do.

[AMR]

Well Strat just asked the same question I was going to :)

I might add a filter to breakouts (as I am usually 2-3 days late catching them). Buying only on the pullback reduces risk, and it seems to happen a lot too.

[dartMonkey]

Would CVN fulfil the criteria for a breakout?
There's no overhead resistance.
Aside from the ta there's a fundamental reason behind it going higher.
If you were to run filters over it, what would those be?

[STRAT]

Would CVN fulfil the criteria for a breakout?
There's no overhead resistance.
Aside from the ta there's a fundamental reason behind it going higher.
If you were to run filters over it, what would those be?I would think no but aint it a pretty chart. Just lovely :D
:bier:

http://www.investopedia.com/articles/trading/08/trading-breakouts.asp