When to not trade a breakout?

Hi,

I am trying to incorporate a more traditional breakout system but there is one major problem i keep running into.

That is when a bar breaks and closes above a clear support/resistance level/channel(whatever you want to get the breakout on) to instantly go back into that channel taking out your stop.

I know there is the method of waiting for a break, then a retest of the level to see if it holds but ofcourse that also means you will miss out on those moves where a break does continue.

Is there anything that can be done to tell when a breakout bar should be traded and when it should be avoided?

Thanks.

I trade breakouts but i set multiple entries at certain levels in anticipation of a retracement after the breakout has been established. No retracement, no trade.

You will miss a number of oppurtunities but the risk reduction is worth it.

I would much rather be as selective as possible in order to minimize risk, even if it means missing out on trades.

There will always be another oppurtunity when trading.

Best of luck and happy trading to you

2 Likes

Thank you for the reply.

Yes minimising risk does seem like a more important factor then always catching the move and hoping it continues.

and happy trading to you aswell :slight_smile:

Many traders lose not because of wrong signals but because of improper and destroying money management. Its like making 10 profitable trades and then losing all in one because of dismissing stop loss use.

[quote=“StavFX, post:1, topic:105807”]I know there is the method of waiting for a break, then a retest of the level to see if it holds but ofcourse that also means you will miss out on those moves where a break does continue.

Is there anything that can be done to tell when a breakout bar should be traded and when it should be avoided?[/quote]

I don’t think you’ll find anything else that’s anywhere near as reliable or helpful as the retesting and rejecting principle you’ve already mentioned.

You could also try avoiding entering long just under round numbers and entering short just above them, and looking at currency pairs closely correlated to the one you’re trading.

Try having the discipline to trade only “Trapped trader” breaks. Less trading but much more consistency. And o yes, you will miss some moves, but rather trade less and make profits, than trading all the breaks and losing too often. Best of luck!