Home Trading Strategies Do You Make This Breakout Trading Mistake?

Do You Make This Breakout Trading Mistake?

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Do You Make This Breakout Trading Mistake?

hey hey what’s up my friend so let me ask you right have you ever you know seen the market explode up higher right the range of a candle is nice big and bullish and so you buy the next thing you know the market paused and then collapsed room all the way down and you got stopped out of your trade man rainer why does this always happen to me why why why well let me tell you why it’s because of probably one of these two reasons number one you are chasing breakouts now what do i mean by chasing breakouts so look at this chart over here okay so to many traders right they would think man reina this is bullish man look at this huge green candle price closing near the highs strong bullish momentum rainer what’s stopping me to buy are you crazy well there are a couple of reasons right why i don’t want you to buy when you see such you know explosive move in the market reason number one when the market you know makes a huge move right chances are it needs to pause it needs to rest for example if you sprint 100 meters for those of you who don’t exercise you probably need to rest right need to pause take a break get some water and it’s the same for trading after the market makes a huge move it needs to pause and this could be in the form of consolidation or even a pullback and sometimes even a reversal so in other words by chasing breakouts you are putting yourself at a disadvantage because this is when the market is prone to make a pullback or reversal so that’s reason number one reason number two is this when you chase breakout let’s say imagine you buy this breakout over here say on the next candle open let me ask you where will you put your stop-loss well chances are i’m guessing you put it below this lows right now what’s the problem with this because if you look left you would realize this is actually an area of resistance where previous resistance could become support right and if you put your stop loss just below this low of this candle then what’s happening is that the price could retest previous resistance that could become support and then bounce higher and then you get stopped out of your trade because your stop-loss is too tight because you’re putting it smack right at an obvious level so some of you might be a little bit smarter so okay i know right now so let’s not put at that level how about this low over here and that’s not a bad idea but here’s the thing if you look at this right if you set your stop loss below this low now your entry point is around this 180 level in other words your stop loss right is from here all the way down to here that’s about a 600 pip plus stop loss and that’s pretty wide and if you have a wide stop loss right that actually results in a poor risk to reward on your trade and these are the two reasons why i don’t want you to be chasing breakouts because number one it’s prone to making a pullback or reversal and number two if you want to set a proper stop-loss it’s usually too wide okay so that’s the first thing right don’t chase breakout so another one let me share with you another example of chasing breakout so look at this right the smp 500 pretty much it collapsed uh 30 right within a span of a few weeks or maybe uh one or two months over here look at how bearish this is traders are bearish price broke below this key area of support time to short this market and if you would again right if you were to be chasing this market again it’s going to be painful because the market actually reversed 180 degree right and now trading back near uh the highs okay so again same thing happened right chasing breakout over here look how bearish this is people selling right on the breakdown of this lows again market reverse up higher and again the two things to consider number one we talk about price prone to making a pullback or reversal or let’s say you know that didn’t happen but where are you going to set a logical stop-loss let’s say the market broke down here and you want to short this market where do you set a logical stop-loss there’s no swing highs that you can reference to the nearest swing highs at this high over here that’s a pretty done white stop loss okay so the first thing again right bear repeating don’t chase break up so mistake number two is this you buy breakout against the trend so as you have probably heard a gazillion times the trend is your friend right if the market is trending higher look for buying opportunities if the market is trending lower look for selling opportunities that’s pretty much the gist of it but again it doesn’t really sit too well with traders because they want action right now you know i want to be a trader i should be entering and exiting my trades in and out and that’s why you know they lose money often right so look at this ask yourself what is the trend of this market is it hitting higher or lower clearly you can see that the price making a series of lower highs lower highs lower highs market is in the downtrend so in a downtrend what do you want to do do you want to buy or do you want to sell buy buy are you sure no you want to be looking for selling opportunities so this means even if the price were to break out of a swing high like this over here you don’t want to be buying because the trend is towards the downside simple okay so now what if the market is in an uptrend do you want to be buying or selling so this one here some traders may look at this right hey rayner look at this head and shoulders pattern left shoulder head right shoulder this is the neckline price breaks down market gonna collapse time to shut this market remember what i just said right look at the trend is this market heating up higher or lower well this market is in an uptrend so you’re gonna look for buying opportunities regardless of whether the market break down regardless of whether there’s a hit and shoulders pattern trade with the trend right you’ll find that your breakout trades would you know get better over time okay so this is what i mean by by don’t trade against the trend right especially right when the range of this breakout is is very small like this is like what 20 30 candles right this range is too small right to be of anything significant so these are the two mistakes right that you want to avoid when trading breakouts right number one chasing breakouts and number two you know buying breakouts against the trade so now at this point right how should we trade breakouts and that’s what i’m about to to share more with you but first if you are enjoying this training video smash the thumbs up button if you don’t like it then hit the subscribe button sounds good then let’s move on how do we trade breakout so i’d like to share with you this uh strategy or concept called breakout with a build up right it’s called the blob strategy so the first thing that i look for usually is the market to be in a range i mean market has to be in a range right before you can trade a breakout and ideally i like to have 80 candles or more why 80 that’s your question so let me first and foremost say that you know it doesn’t have to be exactly 80 if you get like 79 78 77 that’s fine as well but i just said it as 80 for this particular reason is that the longer the market is in the range the harder it breaks let me explain why let’s say the market is in range okay up down up down up and the longer that the market is in the range the more stop orders right will be placed beyond the ends of the range so for example let’s say someone is selling the highs of resistance let me ask you where will they set their stop loss well if you’re selling near the highs of resistance most textbooks most courses most gurus will tell you to set your stop-loss above the highs of the range somewhere here and what if the price comes towards the low of the range and people buy at support where will they set their stop-loss their stop-loss is probably below the lows of the range so in other words right as the market stays in the range right the longer it’s in a range the more resting stop orders will be placed above the highs and more will be placed below the lows and the more orders that are being accumulated what happens well this creates right more fuel right for the market to break out later on why is that because if you think about this let’s say you shot at resistance right you put in a sell order then you need to have a stop loss what order is a stop loss i’m sure you can agree that order is a buy stop order right because if you shot the market your stop-loss will be a buy stop order if you buy long go long on the market right your that stop-loss order will be a sell-stop order okay so let’s say for example someone sell a resistance this over here is a buy stop order placed above the highs of the range and as the range progressively stay long the market stays longer in the range more and more buy stop order will increase will accumulate over time so when you get more and more buy stock orders accumulate near the highest of the range when the market breaks out what happens this stop-loss order will be triggered right and you will fuel right buying pressure to push the price up higher so this is why when you pay attention to the chance right the longer the market stays in a range right the subsequent breakouts are usually pretty done strong okay and this is the reason why i look for at least 80 candles or more next thing i look at is number two is the price approach the highs of resistance and forms a tight consolidation otherwise known as a build up so if you recall earlier right when you chase breakout there is no logical place to set your stop-loss right in fact if like for example let’s say the market goes up goes down goes up breaks out the logical place to set your stop-loss is below this support and as you’ve seen right it can be pretty wide so what i want to see instead is for a build up to form this way it gives me a logical place to set a stop loss so a build up can look something like this right price comes up and instead of retesting the lows of support it consolidates over here forming a build up now all right now i can reference this lows this swing low over here to set my stop loss my stop loss now will be much tighter right from this highs and to this lows that’s it that’s my stop loss where previously if there isn’t a build-up for my stop-loss will be from here all the way down to this lows and as you know right the larger your stop-loss the poorer your risk to reward this is why we look for a build up the third thing right a 20-period moving average to touch the lows of the build up so now this is where things get tricky right you know when the price forms are built up man right now how many candles do i need to wait for five candles eight candles ten twenty you know so this element of subjectivity right is i get it right it’s not easy to to to handle so this is why you let the 20ma be your guide so you just pull out the 20 period moving average and make sure it has to touch the lows of this build up over here once you touch the lows of this build up it tells you that the market is ready to make a move okay so let me share with you a few examples of how this uh looks like because i know you know examples will be much easier to understand the concept first thing first look at this so you want to measure the range over here from here to here how many candles are there so i’ve done the calculation if you’re using trading view you can just pull out this pen uh this ruler tool pull here and all the way to the left you can see there’s about 80 bars at this point in time 80 bars over 112 days okay so second thing we’re looking for is a build up this is the build up that’s form now you can see that this is built up right it’s on hindsight it’s easy to look right in fact doing this training video many traders are saying yeah rainer everything’s on hindsight it’s easy yup i guess it’s easier than you know trading at the rightmost end of the chart but the key thing i want to share with you is concepts techniques for you to validate on your own i’m not telling you to trade this life immediately these are things that research that you have to do on your own to validate whether it works or not right i’m just here to guide you not spoon feed you okay so again now this build-up has has been formed but when you’re trading live right you can see that you can see that at this point right the price is already forming a potential build up but how do i know you know when to place that buy stop order above the highs right how do i know when to do that so remember i say use the 20ma to be your guide so i just pull out the 20ma you can see that at this point the lows of the build up has not touched the 20ma here over here so again it’s still too early to place a buy stop order above this heist give it some time until the 20ma touch the lows of the build up only then do you set a buy stop order above the high so at this point you can see that yes the price now has touched the 20ma now you can place a buy stop order above this heist if the price were to break out of it so at this point we can see that eventually it did break out on this candle here okay so where do you set your stop loss very simple right this is the lows of the build up we can now reference from this lows set it one atr below here below this somewhere about here your stop loss okay so be because of having a build up right now you can set your stop loss at this level logical level which is much tighter instead of you know this lows over here which is so much wider so one more example maybe two more examples right dollar against the chinese union so same concept look at this so this is something important we can see that this one over here what’s okay let me do a quick uh quiz with you right what is why is this different right compared to trading breakouts against the trend the earlier one you’ve seen why is this allowed but the previous one not allowed why i know some of you might might be thinking oh rainer the market is in a downtrend man why are you looking for buying opportunities well the key thing here is again remember we are not looking to just trade any breakouts right the breakout first and foremost must be in a range at least 80 candles or more because when the market is in a range of at least 80 candles or more orders right will start to build up above the highs and below the lows and in this case all right orders starting to build up above the highs of this resistance okay so that’s the first thing right that’s why we’re looking to buy breakouts because now the market is in the sustained range for quite a long period of time you can see that’s about i would say from jan about four or five months next thing we’re looking for the build up okay so the market has formed a build up over here but as mentioned right build up in real time is not easy to spot so this is why you use the 20ma to be your guide so at this point you let the 20ma the price right or rather the 20 it may touch the lows of the build up so over here you just touch the lows of the build up at this point you are now allowed to place a buy stop order above this highs stop loss right can go 180 below these lows over here below these lows over here or even here if you want to be more conservative okay so this is how we actually spot the uh what setup right just one more over here before we move on next one amazon this is stock right same same concept over here you see that this market is in an uptrend even better still right this one is in an uptrend price forming this built up over here you pull out your 20ma you can see that the 20ma has actually touched the lows of the build up in fact even make a false break set up a couple of times one time two times over here but still the setup is still intact right your trade right can be to place a buy stop order above this highs so if the price breaks above this highs you go long stop loss one atr below this swing over here okay so one bonus tip to share with you is that if you are trading in the direction of the trend right i will be more lenient right with the range of the candles which is you know you saw 80 candles i’ll be fine right let’s say there’s 40 candles or 50 candles that’s fine because after all you’re already trading in the direction of the trend but if you’re trading against the direction of the trend then at least 80 candles to form okay so there you have it right break up with a build up so let me share with you a few bonus tips right before we end number one when you trade breakouts right especially those of you who trade stocks right if the price is trading at all-time high this is a huge plus why that’s because when the price is trading at all-time highs most people are in the money they’re all in profits they’re all happy nobody wants to sell because you know you’re in the green why sell you know the market go to the moon so they hold on to their trade so this means there’s little selling pressure right to to to to push the stock price lower so when you buy breakouts with a build up and the price is at the all-time highs this is a good sign for you right you want to be trading uh such breakouts this usually lead to you know a favorable outcome not always but more often than not so you can see over here amazon over here at this price point i believe at this junction the price is at all-time highs right in 2017 right around the march april period when price break above 850 860.

right this is a good sign right i know many traders they will look at this oh man right now the market is so high it can go up higher forever right it has to you know pause you need to reverse right what goes up must come down well when it comes to stock right you want to be buying strength when something breaks out higher breaks up to all-time high it’s a sign of strength not weakness okay the reason why it’s fine to be buying breakout here is because again you’re not chasing breakouts there’s a difference between chasing breakout and trading breakout in a responsible manner over here you have a build up that has been formed and over here you have a logical place to set your stop loss below this lows of the build up so there’s a difference here right you’re not chasing breakouts you’re actually trading breakout with a build up and number two right if the price leans against higher timeframe price structure again that’s another high probability breakup to pay attention to so this is more of a reversal breakout right let me just explain what i mean so over here you look at this right this bitcoin over here so you saw amazon earlier that is a i’ll say a trend continuation breakout where you’re trading with the overall uptrend but if you look at this one over here right this is what i call a reversal breakout and the rules again right are still the same right you have at least 80 candles that are being formed over here you have a build up that’s being formed i mean 80 candles here a build up that’s being formed and the 20ma has touched the lows of the build up okay but what’s key over here is that this range that’s being formed right it’s actually at a key level so over here is actually a key level let me explain right so if you look left right or you if you zoom out right you can see that that key level actually coincides with this key area of support let me just go up one time frame higher and you’ll see it better okay so basically the lows over here the lows of this range actually is this key area of support where price broke above this resistance and previous resistance turn support and it came back here for a second time to re-test the port and on top of it right you realize that this market is actually leading against this key area of support now i don’t just buy breakouts because the price leans against this area of support rather i buy it because the price action right tells me that the market is likely to hit higher over here you see again we have a breakout with a build up over here this is the range at least 80 candles we have a sign of strength price making a series of higher lows into resistance this build up has been formed and when it breaks above this highs right that to me is a valid breakout trait to trade but the another factor that’s going for this market is again this level here right you actually you have actually come into a key area of support on the higher time frame and that again sweetens the deal right and that’s the key thing i’m trying to point out okay if the price right leans against higher time frame price structure like support right that also right increase the probability of the breakout uh working in your favor okay so those are two things to bear in mind and so quick recap right number one don’t chase breakouts because this is where the market usually is about to make a reversal or pull back and also there’s no logical place to set your stop loss number two right don’t trade small range breakouts against the trend okay so what you want to do instead is to trade breakout with a build up at least 80 candles in a range uh we have a build up and 20ma has touched the lows of the build up this tells you that the market is ready to make a move and then a couple of bonus tips right price trading and all-time high is a good thing and if the price leans against a higher timeframe price structure that is a good thing as well so with that said right if you’ve enjoyed this training right and you want to learn more about price action trading right i can go down to my website trading with random.

com this guide would be very suitable to what you’ve learned strongly complement what you’ve just learned right the ultimate guide to price action trading you’ll learn how to better time your entries exists we talk about market structure support resistance and much more so just click the orange button right and i’ll send it to your email address for free so with that said right i wish you good luck and good training and talk to you soon you

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