So I have been baffled by the vanilla statement I hear floating around which states:
“breakouts usually fail”
Can someone please clarify a few things for me?
where are the stats for this?
how did they qualify a breakout?
2a) if they haven’t qualified a breakout, doesn’t it make the stats or statement really arbitrary?
I’m interested in hearing your response to all this as its a question I’ve been wanting to ask for a long time publicly, so will be interested in hearing your response to all this.
I think the definition of a breakout is really important here. For example, there is a difference between “price failing to breakout” and “a breakout that failed”. The first implies that price never reached the breakout stage, in that price continued to adhere to the same restrictions. The latter implies that price did breakout of said restrictions but could not sustain itself outside of these restrictions. By restrictions I mean things like support and resistance levels.
So we can isolate price failing to breakout as not part of the set of breakouts that failed. Ok great - so if someone says most breakouts fail, then they are talking about the latter (where price actually did breakout of the suggested level, but failed to actually hold the gains above this level).
Ok great, so if someone says most breakouts fail - where are the stats for this, and how can they really make such an arbitrary claim?
Also, does this mean above the prior candle’s high/low?
Does it mean above the day’s high/low?
Does it mean above a key support or resistance level?
What does it actually mean when someone makes such an arbitrary statement?
Do you get why I’m actually asking these questions?
Just curious and looking for responses from traders.
I’ll be putting up my weekly price action outlook later today, but wanted to post something a little different.
Normally, when I put up trades, they are from my actual broker chart of live trades I took showing the entry and exit showing you how I trade.
Today, I wanted to do something a little different - and share with you two trades one of my students took where he banked over 112 and 47+ pips across two trades on the same pair. His overall reward to risk ratio was over 4+ per trade (Chart Below on the NZDUSD).
Now just to put this in perspective…if you are trading on the daily/4hr charts, and typically snag two or three 2x reward plays per week, you’d need to win all your trades, minimally win 4 in a row, and wait 1.5 weeks to make what he did in less than 48hrs just making two trades.
Food for thought, but remember, if you make 200 pips on one trade, risking 100, it is the exact same profit (with a fixed equity % per trade) as me profiting 80 pips with a 40 pip stop. Exactly the same.
These trades were done using our price action systems for finding key reversals and trend continuation plays.
This is the kind of trading you can do when you learn to read/trade price action in real time, and not just relying upon 3 basic price action setups.
Anyways, just wanted to share what some of my students are doing on a regular basis, but being able to trade consistently and profitably is a real thing that anyone (you particularly) can learn to do.
Great question Chris on breakouts - almost everyone knows or has read about the famous turtles - and so it can become one of those urban myths - ‘most breakouts fail’ - the truth is I have believed this to be so - but I have never ever tested it - an inner sense still tells me it to be so, but have I proof? - no.
This is maybe what’s wrong with all us newbies - we believe everything fed to us without ever questioning - you are right - keep questioning everything.
Hi Chris,
l know you are championing lower timeframes at the moment and l have no problem with that; you do have a good case. However, as you yourself have said on many occasions, each trader has to find the timeframe that fits his or her temperament and lifestyle. l want trading to be a lifestyle “enabler” for me and not another job, and having tried lower timeframes l know l am happier on the 4hr/daily TFs. l traded the same pair (NZDUSD) this week using the Daily as my Trading Timeframe and the 4hr as my Entry Timeframe.
l saw a flat top triangle price squeeze set-up on the Daily and using the 4hr TF got a reasonably good entry quite near the Trendline and added a third position a little later when a 4hr Ledge set-up printed.l took one postion off at 1:1 RR after 31hrs, the second before some Red Flag NZD news after 53hrs at about 1: 1.5 RR leaving the third 4hr postion which only had a 38pip stop to run. l took that off after 30 hrs for 1:3 RR. l am cautious in my trading and my results may not be as impressive as the other trader but l am very happy with my outcome and crucially for me l spent relatively little time in front of the screen.
l take you point about traders only having three candlestick set-ups to look for etc etc but this is not true for me.Like you l am interested in the orderflow and the sentiment behind the candles. l also feel that only having nice candle patterns to look for is becoming increasingly unrewarding as the charts don’t seem to want to present nice patterns so often! Unless you can read sentiment and market structure and enter trades without pretty patterns you will find it very difficult to turn a profit these days l think.
So l agree you have to go deeper in your analysis and trading education than just learning a few nice patterns (if only!!) but l would like to just add that earning my financial independence with 1-3 trades a week and relatively little screen time is my personal aspiration. l do really enjoy trading and continuing to learn and develop as a trader, but after serving my apprenticeship and putting in the hours l have many other horizons, both inner and outer, l want the time to explore!
Thanks as always for your insights on trading, whatever the timeframe!
Yes, very good observation - that newbies tend to believe most of what’s fed to them without ever questioning it. Keep questioning for sure. If I just believed everything that was espoused to me when I started out, I would still be in the dark ages of trading.
Perhaps that is why I evolved the way I did - I taught myself and learned the markets through my own time behind the charts.
I personally use breakouts as one tool, along with many others, but myself and my students trade them profitably, so this is why I am challenging it.
I think if we get down to it, nobody can really define a pure breakout. And when they do, they find their generic arbitrary statements don’t quite pan out.
I am not actually championing lower time frames. that would be the same thing my counter-parts are doing, which is championing one time frame as the island of profitability. This is not what I’m trying to do. I’m trying to get people to recognize no time frame has the monopoly on profitability.
But yes, I think everyone has to find what is most natural to them. But a food for thought about the trading being an enabler (and not a job) because that is what it is for me as well. Keep in mind, I’m not trying to change your mind if you’ve found something natural for you - I’m totally supportive of that. Just want people to consider what they may be misunderstanding.
For me, I trade the 5m, 1hr, 4hr and daily, but trading the 5m is not a job where i’m pinned to the screen. I spend maybe 1-2 hrs a day just trading the 5m, and I can easily get 1-3 trades a day at 2+, 3+, 4+ reward to risk. So in terms of time, what may take a person doing 3 trades a week at 2+, 3+ or 4+ reward to risk plays, I can get in one day. Now assuming you also spend 1-2 hr per day trading the daily/4hr, managing it every 4hrs, etc., your total is 5-10hrs per week. Ironically, the same as mine. Yet my account doubles/triples/quadruples at a far faster rate assuming accuracy and risk equity % are the same.
Even if I double my daily trade time, although in one year I’ve spent 4x the time you did, I got there at least 4-5x faster, so food for thought - not so much to change your mind if you’ve found a groove, just to get a full picture to how it works in terms of time management and doubling of one’s equity.
But again - find what’s comfortable for you, and stick to it. If you can stay consistently profitable - then keep at it, I’ll support you 110% of the way, and be happy to be a part of your journey and offer ideas that hopefully you find of benefit.
And yes, the whole ‘3 candlestick patterns to profitability’ approach ends up leaving traders reactive, not responsive or empowered to understand the markets as a whole. And yes, one has to go deeper - or leave yourself paralyzed when the patterns fail to work or present themselves.
Anyways, all the best and thanks for sharing both your reflections and chart which is a handsome breakout/price action squeeze setup.
Chris, First of all nice to see you active on the thread. Very good discussion on breakouts.
I am not a profitable trader in breakout trading as you. In my case I always waiting for a retracement (may be due to lack of confidence) to the support or resistance level which breakout occurred prior to take any trade. I am getting mixed results but more into losing side by doing this.
I would say one thing about the lower time frames.
It does need a more trained eye to react and weigh things up quicker. That’s the only difference in the big scheme of things. Get comfy and work your way down.
RMc
Ps. I’m still on the daily/4hr. Full time job etc etc!
I would rather like to say time frame depend on the trading style of a particular person. I am also doing a job and I consider 5Mn - 4Hr time frames for trading. Everyday we can find so many good trading setups on any time frame. J
I think our master, Chris also created an article on the similar matter. If I am not mistakes that was “Trading is not a fashion contest”.
In regards to breakouts, the main point is people avoid breakouts because they hear vanilla statements that ‘most breakouts fail’ which is a) a really unqualified statement and b) quite arbitrary.
When people start to ask questions about the statement, most people do not get a solid response what is an actual breakout. And when they do, the definition is so loose, that it really could mean almost anything.
When you learn to properly pre-qualify a breakout, then they become highly profitable. And this should be natural if you really understand how order flow works, how this affects price action, and what is the order flow behind a breakout.
When you really start to understand this, it becomes a highly profitable tool to trade price action, not just for taking new trades, but also getting out of current positions, and potentially reversing the trade.
So just learn to pre-qualify them correctly, and you will definitely notice a change in performance.
Yes, it takes a little more training, but not much. If you already understand how to read/trade price action, then the tools are relatively the same, and the adjustment could be made in a matter of a few weeks.
But yes, get comfortable, then work on expanding your skill set.
Heyz Chris … I’m a newbie in forex and I saw ur post and are very intrested on it . But do u mind teaching me how do I trade with price action … what steps should I follow ? Hope u can help me … nice post by the way … regards : bryan
Hope you are doing good. Congrats on 5 Year Anniversary. Just got to know about it from your website. There are so many mentors for price action trading and normally they cannot sustain in this business due to lack of knowledge and experience about the markets. You are so different compared to the others and very experienced person regarding price action trading. That kept you 5 years as a mentor and will keep you forever. So wish you all the best in future activities.
P.S - I saw that you have organized The 5 - year Anniversary contest and offer some valuable prizes. I think you gonna announce the winners tomorrow. So consider me as a contestant.
I am also a newbie here. Got some good knowledge after I got to know about Chris. Stay with this thread and you can get more knowledge on PA trading. Good luck mate.
After a long trip and a new computer, I’m back to posting regularly.
Today I’m watching Gold amongst other things, but the PM got monkey-hammered today losing over $50 from top to bottom and broke a critical support at $1598. This was after an inverted pin bar + Inside Bar combo which was merely a pause in the already consistent selling.
Now the metal is barely holding onto the $1564 support. A break here targets $1550 and a dangerous support level at $1525 which is the 2012 yearly low. If this breaks, expect a ton of stops to get tripped and likely a $5-10 selloff in price in a matter of minutes.
I’ll look for rotations back into $1598 that are corrective to sell it on a rally.
The only buy I’d consider would be after some stabilization around $1525 should it show weakness heading into the level.
yes, this thread is dedicated to teaching people like yourself how to read/trade price action. I’d suggest starting with the first few articles on impulsive and corrective price action. This is a base model for reading and trading price action.
Once you got this down, then you’ll be able to spot the general direction, where the larger players are pushing it, who is weak, who is strong, and where they are getting into the market.
So start here, then check out the following articles and market updates to give you an idea of how I look at the market in real time, along with my trades that I share so you can get a glimpse of how I trade the markets using pure price action.
After you have done this, then let me know and I can recommend some additional material to study.
Hope this helps, but you can definitely learn to read and trade price action with the right tools, which I share here.
Quite an interesting day for trading with some really quality setups.
One that is interesting to me is the pin bar setup on the Aussie that formed on the daily. This pair launched higher in early Asian trading, but may offer a pullback into the pin bar range. The pin bar formed at the 1.0230 support forming a double bottom, so this bounce may have some legs.
Upside resistance is 1.0330 and 1.0350 which are the dynamic resistance and double top from the daily chart, so watch for corrective pullbacks into the level for possible buy signals. A failure to hold 1.0220 will setup a move towards 1.0160.
Oh Chris, Missed this lovely setup. Saw your analysis later. Price shot to 1.0330 quickly from the double bottom and stalling at the moment. Hope you grabbed some pips from that trade.
