Hello everyone,
When is the best time to go short on a breakout? I always seem to be out prematurely and can never maximize my pip gain.
Advice is greatly appreciated.
Thanks,
Andrew
Hi Andrew, are you asking about going short on a breakout to the [I]downside[/I] of a range, or to the [I]upside[/I]?
There’s surely no reason, in forex, for “going short on a breakout” to be treated any differently from “going long on a breakout”, so I’m confused by why you’re specifically asking only about one side of the equation?
If you’re talking about “fading breakouts to the upside”, in the expectation that they’ll be false breakouts, or “fake-outs”, i.e. prove not really to be sustained breakouts at all, then according to some authors (such as Linda Raschke, who jointly invented a now rather well-known system called “[I]Turtle Soup[/I]”, based on doing the exact opposite of what the famous “Turtle traders” did in the 1980’s), the answer is probably “almost all the time” because more potential breakouts prove false than real. This is a very specific and specialised form of trading, though, which many people find counterinuitive. And it requires a highly specialised skill-set.
So - why are you asking only about short trades, here? :15:
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Sorry I should of been more specific,
When a breakout occurs and moves to the upside and starts to become overbought, when is the best time to go short during that quick movement. (I would buy right when the breakout occurs and plan to sell when the upward movement starts to slow down and try to go short before the price starts to decline to maximize my profits)
Is it biased off of how much each trader is going to take or is there some type of science to this?
Ok, understood - thanks. 
How do you define “overbought”? What does it actually [I]mean[/I] to you?
It’s one approach. (Others are to buy “second breaks” and to await a retracement and continuation before buying, and those two overlap to some extent.)
Ah, ok … is this what you mean by “overbought”? I don’t think this is a bad way of looking at it, at all, myself.
(I just sometimes shudder a little bit, when people use the words “overbought” and “oversold” in forum conversations, because they’re using it thinking of a “stochastic indicator” - and overbought/oversold is basically nonsense, in that context - they’re confusing the [U]speed[/U] of a car with its [U]acceleration[/U]; in other words, their underlying concept is itself a type of “category error”!).
I think you’re asking a good question, here, actually (sorry it took me two goes to understand it! :8: )
So, we’ve entered long on a breakout upwards, and we’re now discussing when to close the trade (and/or maybe even to reverse it), have I got the idea?
Yes - both! Some traders will decide that according to pre-set targets which they’ve collectively proven to have an “edge” for that instrument in that type of market (and some of the smart ones will define that pre-set target in accordance with the ATR, in my opinion - in other words, “allowing for volatility”). Others will have their own “science” for this, and it tends to be a science of bar-patterns/candle-patterns.
“Science” is a really good and perceptive word for it, because it’s probability-based, evidence-based, statistics-based, backtesting-based, or whatever you want to call it - “mathematically based”, anyway, and therefore “scientific”.
For myself, if I’m trading (say) 3 lots, I’ll close the first two lots according to a volatility-based “target”, and then let the third lot run (trailing its stop-loss manually under the most recently formed swing-low), closing it according to various bar-patterns which boil down to mean “when the upward movement starts to slow down enough for me to think it’s fizzling out and/or even might reverse”, to paraphrase what you’ve said above.
You’re asking a really good and important and under-discussed question here, and I apologise for the long-winded and slightly garbled reply, Andrew. :8:
What I’m really saying is that both the methods you’ve mentioned above have their places. Some will prefer one to the exclusion of the other, and some (like me) will try to combine both.
One of those two methods (the “bar-patterns” one) requires a lot of experience of “price action patterns”, but in my view it’s very worthwhile.
The other requires only (perhaps) more easily acquired statistical and analytical skills.
This isn’t an easy issue, but it’s a really important one. [B][U]More[/U][/B] important than “exactly when to enter”, the consideration of which, in a forum like this, occupies about 100 times as much space, because most aspiring traders imagine that “entry methods” are the most important aspect of “trading systems” - and they’re not at all!
Thanks so much this really helped!!!