Breakout trading vs Pullback trading in trends

Yes, I know. And we all do it. But consider this - If 80% of your trades are winners and 20% are losers, you might be tempted to put in a whole lot of time and effort and research and energy to reducing the 20%. so let’s say your efforts are very very successful and you cut the number of losers by a tenth. So now you have only 18 losers, which means you have 82 winners.

But let’s suppose your efforts at increasing the winners is equally rewarding, and you increase them by a tenth. So now you have 88 winners and therefore only 12 losers. Which is better, 82 winners or 88 winners? And remember to take account that one use of your extra time was 4 times more productive than the other.

What’s easier when it comes to trading- being correct 80% of the time, or being correct 40% of the time?

40% is easier, but what’s your point on this?

I have to say my 80:20 example shouldn’t be taken literally, I’m not saying an 80% win rate is necessary, achievable or even desirable. What I mean is broader - where you get 80% of your reward is where you want to put in 80% of your effort.

What I’m saying is reinforce your strengths, get better where you’re already good, don;t be afraid of failures along the road, they don’t mean you’re lost.

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Ok- that is clearer and I agree; that is where the effort should be.

My point was coming from a place of taking your post literally.
A lot of people out there talk about the need to capture 80% “win” rates and completely discount a strategy with high Reward vs. Risk. A 40% “win” rate could be sustainable (measured via sharpe and risk of ruin ratio) if you’re capturing > 2:1.


I think you can paper trade using an excel sheet and have an initial balance in the excel sheet and with each trade you take you subtract from that balance so it seems like a real trading environment. I think it’s also possible to get past news, i haven’t really checked though. I very much agree that nothing beats going live, but I’m just looking for the closest alternative to it

I was going to throw my 2 cents in until I saw @tommor post.

I agree to the fullest with everything he said and there is nothing I could add that would be of benefit.

Well said sir.

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I have found that using some technical indicator to give you more of a visual clue, quite helpful. Either stochastic or macd crossings. So then you would be looking for levels of confluence. Here is an example.10 min
So typically you will have more confidence entering the trade. And as mentioned ,this is your edge, now you have to trade your edge. You should find that you have slightly better than 50% hit rate, which is fine. It comes down to money management then to maximize your advantage. Also remember that having an edge is very important, and to keep on repeating that over and over, because there is no guarantee that your next trade will be successful ,you could have 10 losing trades in a row, but you have to complete at least 25 trades, and then make minor adjustments if necessary. Trade your edge. I came across these graphs, it is from Goldman Sachs dealing desk operations. Interesting to see that when they are right, they are right in a big way, and when they are wrong, they are wrong in a small way. And also, their winning days far outnumber their losing days. .image . Aim for these results.

Try this for a month, and then fund an account with real money that you’ve had to earn and tell me the difference. Simulation trading will never trigger the emotional aspects of the game- ever. It’s a great tool to learn a platform and get comfortable with the primary concepts of trading. But until you have money on the line, there is no comparison.

But I think that the demo and backtesting period help you to see clearly unlike the live periods, because when live your judgement might be clouded by emotions and you won’t be able to find tune your strategy to the market properly but in demo all that is cut off.

I actually think of it as two demo sessions, where the one with fake money is used to fine tune the strategy till it works and the second session is live with small money which is used to get emotions under control, all these before really going “live” with a good amount that makes profit. Do you agree with this @FOREXunlimited ?

Everyone who has responded to your question sounds like an expert and that is something I am nots. So please understand that this is by no means the opinion of an expert, in fact I am on the opposite end of that spectrum. However I have spent a considerable amount of time grappling with this as well. I must also say that something that works for one person won’t necessarily work for someone else. For me I have found over the last few months that volume and time of day help me limit the number of times I get trapped in a fake out. It still happens but not as frequently. Say I am looking to sell at a support area where I think there might be a break to the downside. If I see a really strong move the 1st thing I do is look at the volume if its low than I consider that breakout as unreliable it is likely to be a shooting star candlestick. If the price moves back up to the support area as volume increases it is usually an indication that large speculators are not yet interested in seeing breakout and have pushed the price back up. I also look at which session it is and what time of day it is there. This is my method. Alot of people may not agree with it

I actually agree with you, I’m kind of new to the volume trading but through backtesting I can see that it really really can stop you from going the wrong way. Your method is :ok_hand: but what I do is a bit different from just looking to see if volume is high or low, I check how volume has progressed over let’s say 4 or 5 candles to see if volume has been increasing leading up to that candle, I haven’t perfected this yet so just take this with a grain of salt, I think that’s how it’s said (The grain of salt part) I am no pro either so I stand to be corrected at anytime

I do something similar…in fact try looking at the previous days high volume trades. At times it will mirror the direction the price went the previous occasion in which volume was high. You can also take a look at the COT report to see what futures positions commercial traders are taking. When you look at that together with volumes it can be helpful. But remember at this moment we are just two amateur traders sharing an idea. I like to think that is another purpose for this forum. Expert traders are very helpful but sometimes it is someone in the same position as you who might actually understand what you are saying or what you want to know.

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Just be careful with the COT report. It’s never forward-looking and the insight gained rarely ever aligns with medium or longer term price movements. You can confirm this yourself by simply mapping positions against price. You have no way of knowing the reason why another trader puts a position on.

Someone could be trying to put a hedge on a portfolio, or an upcoming weather event, or an expected bad crop yield- you’ll never know.

The best thing you could do is come up with a system that is simple and relies 99% on your own intuition. The remaining 1% can be CNBC headlines, or opinions from other traders, or the COT Report. All of those things can go away overnight, and what would you be left with?

Yes I do try to move away from retrospective indicators, which is just about all of them. One thing I noticed is that I can never really get into a long term trade when my analysis has been based on certain indicators because the bulk of the move has usually been completed by the time the indicator gives the correct signal. So as you say it can turn on you overnight. Generally speaking I only use the COT report as a final confirmation of an idea that I have already developed but what you are saying is true. At times it does start to get confusing. It’s best not to use it as a starting point because it can be misleading.

“Breakout trading techniques are used in the stock and commodity trading market and it can be more profitable, but they are utilized less in the Forex market. The pullback is normally applied to pricing drops which are relatively short in duration. The pullback Trading is the best option for the trade market, because logical methods are used behind the price movement”.

That is because mostly every single indicator is lagging :slight_smile:

Now you’re getting it! :slight_smile: :slight_smile:

Being a Forex trader, I believe that breakouts don’t do quite well in this arena in comparison to the way it works in case of stocks and commodities. But going for pullbacks in trend which prove to be a logical attempt considering it would have most profitable entries.

So what kind of strategy do you suggest for this pullback trading?

It’s too subjective and contextual for a simple answer.
If you wait for a pullback, one may never come, and the market just keeps moving higher and higher.
If you wait for a pullback, you get it and take it, and then get stopped out- what will you think then?

It’s a game of probabilities on a long enough time horizon. You take high probability set ups over and over, with the discipline of a robot. Over time, if you’re avg winner > avg loser you’ll make money. Whatever that ratio ends up being will differ between traders.

You can trade the pure breakout. You can trade a pull back, you can trade both. You can take .5 position on a breakout, and plan for another .5 if it pulls back. There are many, many options.

If you’re trading equities, the options (pun intended) literally open up 10 fold.
You can create simple or complex options strategies to accompany your underlying equity breakout trades.

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Along these lines I saw a Youtube clip by a young trader a few weeks back and he had such a mature perspective.

He said the problem with trading is not technical. Its that to be successful you have to turn up at the same time at the same place and do the exact same thing in the exact same way every day, day after day after day. He said a lot of people just can’t stand to do that. He was not wrong.