We all know that markets can be a pain to trade when they are in a period of consolidation and choppiness. One trade that often appears during such environments is the breakout trade - something I'm sure most of you have traded before.
Breakouts often occur when choppy markets are transitioning to a trending market. If executed correctly, they can be great opportunities to catch the beginning of a new trend, or a continuation of an old one.
But no good breakout trade comes without having sent traders on a wild goose chase. Sharp spikes above consolidation zones often come crashing back down, leaving some traders scratching their heads as their profits are eaten away and close, in many cases, for a small loss, only to miss the ACTUAL breakout and feel annoyed at having missed out on cold hard cash.
So how to avoid fake-outs?
Follow these points and you'll be in a good position to catch those pesky breakouts at the right time:
- Wait for price to consolidate in a box between two zones
- The box should have at least two touches on both zones
- Wait for price to break beyond one of the zones
- Once price returns back to the consolidation box,
wait for the market to retest the edge of the box
- For sell trades, place an entry at the low of the strong
candlestick after the retouch, and for buy trades,
place an entry above the high of the strong candlestick after retouch
- Place stop loss in the midpoint of the consolidation box
- The profit target is the nearest major support and resistance level
You may find that the trade fails even after applying ALL of the points. Remember that no trade is guaranteed but as traders, we want to put ourselves into the best position possible to make a valid entry.
I hope this helps and good look trading those sideways markets,
AvidTrader
Breakouts often occur when choppy markets are transitioning to a trending market. If executed correctly, they can be great opportunities to catch the beginning of a new trend, or a continuation of an old one.
But no good breakout trade comes without having sent traders on a wild goose chase. Sharp spikes above consolidation zones often come crashing back down, leaving some traders scratching their heads as their profits are eaten away and close, in many cases, for a small loss, only to miss the ACTUAL breakout and feel annoyed at having missed out on cold hard cash.
So how to avoid fake-outs?
Follow these points and you'll be in a good position to catch those pesky breakouts at the right time:
- Wait for price to consolidate in a box between two zones
- The box should have at least two touches on both zones
- Wait for price to break beyond one of the zones
- Once price returns back to the consolidation box,
wait for the market to retest the edge of the box
- For sell trades, place an entry at the low of the strong
candlestick after the retouch, and for buy trades,
place an entry above the high of the strong candlestick after retouch
- Place stop loss in the midpoint of the consolidation box
- The profit target is the nearest major support and resistance level
You may find that the trade fails even after applying ALL of the points. Remember that no trade is guaranteed but as traders, we want to put ourselves into the best position possible to make a valid entry.
I hope this helps and good look trading those sideways markets,
AvidTrader