What do you mean by break-outs, reversals and range trading opportunities?
By breakouts do you mean breaking out of a consolidation channel into either an uptrend or downtrend? Wouldn’t that be considered trading an uptrend/downtrend?
Same with reversals, a reversal into an uptrend or downtrend would be considered trading in a trend wouldn’t it?
Break-out can set out from a consolidation zone or a trend channel. Some traders use various candlestick or chart patterns to identify these points, e.g. break-out from an ascending triangle etc. so there isn’t always a trend involved prior t the break-out.
Taking a trade on a reversal signal is similar but here there has to be a trend in place which is about to reverse. But the issue is that the reversal trade has to be entered before the new trend is established. Its not trading with the trend because there isn’t one yet, and its not technically trading against the trend because the prevailing trend has just reversed.
But of all of these, trading with the trend is the lowest risk.
So by break outs do you mean continuation patterns like triangles, flags etc?
And is the difference between trading a reversal and trading with a trend just that trading a reversal would allow you to enter the trend earlier, thus gaining you more pips?
Yes, of course.
If you want to be a trend trader (and that’s probably a good decision), then if you limited yourself arbitrarily to trading only in uptrends, you’d be limiting yourself to only 50% of the opportunities.
Whatever time-frames you use, there are uptrends and downtrends, and equal numbers of each.
So it wouldn’t make any sense.
Certainly a break-out can be from a pause pattern in a trend, like a flag, or from a stand-alone pattern like a triangle.
A reversal can get you into a trend early, and this is great for your bottom line, but a new trend might not actually follow the reversal. At the point of entry, all you know is that the old trend has been reversed, but a new opposite trend might never develop. The reversal is a trend-ending point, not automatically a trend-starting point.
Okay, so in other words, all breakouts are breakouts from a type of sideways movement, is that right?
If somebody is trading a reversal, are they entering because they think they’ll get in on a new trend early, or are they trading a reversal for some other reason?
Break-outs - usually but not necessarily - see http://thepatternsite.com.
Reversals are popular with traders because they believe the new price movement will be much more rapid and dramatic than the preceding build-up. This is often wrong but there is an attraction of getting in at the bottom / top. It is high risk, as when picking tops and bottoms there will always be a high percentage of failed break-outs, so losses will be common. However, the rewards can be dramatic in terms of r:r, and look great on a chart. New traders especially try this strategy: many are wiped out before they can un-learn it and try a lower risk approach.
No - not right at all. Probably not even true of the majority of breakouts.
Breakouts of “points” or “hooks” are also very common, and have the big advantage for trading purposes of being “with-the-trend” trades, too.
You seem to be asking plenty of beginner-level questions in the forum. There’s nothing at all wrong with that in itself, of course. But as you’re seeing, they often get conflicting replies, some of which may be hard for you to understand. That difficulty can fairly easily be solved by reading a beginners’ trading book, though, and there are plenty of recommendations for them in the threads of book recommendations.
What about first establishing a trend, then getting in on a retracement of that trend if you think it’s right to, then cancelling and replacing stop losses every time a resistance level has been broken.
Does that sound like I’m on the right track?
I can’t seem to find those threads you’re referring to, could you link me to one of them maybe?
Nothing wrong with that. There are not many ways that trend-following trades can differ form each other. You might find Rayner Teo’s clips on Youtube useful, I have.
That’s not exactly what I meant.
I don’t want to start a new thread for every question I’ve got on my mind, so I might as well ask it here.
I always hear people saying to plan your take profit or exit before you enter the trade, but what if you plan to trail your stop loss instead? If I want to trail my stop loss in a trend, does that mean that I shouldn’t set a predetermined exit point?
You’re definitely on the right track, there.
That’s a very good way to trade.
Try to identify possible long entries in uptrends and possible short entries in downtrends.
Retracements are good possible entries.
I don’t understand that part of your question.
Then at least trail it manually, not with an automated trailing stop.
It’s still generally much better, under most circumstances (and especially when you’re starting out), to divide the trade and close at least part of the position at a pre-set exit which you’ve worked out according to levels of S/R and volatility.
Great comment and quite right.
Obviously asking general questions, even at a beginner level, is part of the purpose of using a forum.
But I agree with Charlie’s inference that you’d actually be far better off getting a coherent account of the basics from a single, established source than asking a bunch of strangers in a forum, if you don’t quite have enough experience to know with any confidence whose answers to trust. Or at least just remember that some of the “advice” given here, even by some regular posters, is shockingly bad, and be careful. But a good book would really help you, at this stage, I’m sure.
The interesting thing about trading is, that even if I give someone a winning strategy, they may take it and lose all their money. They need to take the tools that they learn and create their own strategy or trading plan, practice them, develop the proper habits, develop confidence in their plan, and continue to execute it over time. If they don’t have confidence in my strategy, they probably won’t continue to execute it properly. It will also take them time to develop the correct habits of trading. It may even take them making some mistakes and losing some money and learning the hard way. So, the interesting thing to me is that there are probably really few winning strategies in a sense. Most traders that win probably come to similar strategies. But, they all have their own sort of version of it, and they have all practiced their plan and developed the correct trading habits
Any strategy can be profitable or winning when it is used with most powerful analyzing money management approach.
Amazing.
Quoted for posterity.
I agree that it doesn’t matter what trading strategy you use, the main thing is that it brings profit. But that it’s not prohibited like arbitrary.