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A Simple Breakout Trading System +5,024% (Backed by Data) 

Last Updated: August 1, 2022

By Rayner Teo

In today’s training guide…

I want to share a simple breakout trading system that has generated 5,024% over the last 31 years.

Once you’ve learned the system, you can spot or get on board MASSIVE trading opportunities such as this:

breakout trading system,breakout strategy

I’ll make sure to cover the precise entries, exits, risk management, and much more.

If you had applied this trading system with discipline, this is the equity curve that you could’ve possibly achieved for the past 31 years:

breakout trading system,breakout strategy

Are you interested?

If so, then let’s get started!

But first and foremost…

What is this system, and why does it work?

Simple.

This is a stock trading system.

Based on academic research and my backtesting, strong stocks are likely to continue in the direction of the trend.

It’s proven!

It’s why this system looks to buy breakouts.

Now I want to be honest here…

I’m about to share the trading strategy with you isn’t mine originally.

I have studied the works of other quantitative traders like:

  • Andreas Clenow
  • Nick Radge
  • Emilio Tomasini & Urban Jaekle

I want to give credit where credit is due.

With that said…

Let me give you the exact trading rules to do this…

Trading rules

Number one…

We are going to be trading stocks in the Russell 1000

Market: Stocks in the Russell 1000

These are the largest 1,000 stocks in the U.S. stock markets.

They are liquid enough for us to enter and exit with relative ease.

Next, we will use a simple trend filter.

Trend filter: Russell 1000 is above the 100-week moving average

Why do we need a trend filter, you may ask?

Well, because we only want to be buying when the overall stock market is in an uptrend.

We don’t be buying when the market is in a recession because this won’t put the odds in our favor.

Simple as that!

Next, entries…

Entry: The stock price has closed above the 50-week high (on the weekly timeframe); Enter on Monday’s open

This is a weekly trading system.

That’s right; you can trade the system while having a full-time job!

You don’t need to watch the markets all day.

Now once the stock has closed above the 50-week high, you’ll want to enter that stock at the market open during Mondays.

So, when the market opens on a Monday, you enter the trade.

Make sure you’re taking notes because this is important!

Moving on…

Exit: When the stock price has closed below the 40-week low  

The exit rule is pretty self-explanatory, but I’ll share how to spot that later on with you.

Sounds good?

Ranking: Stocks that have increased the most in price over the last 50 weeks

Imagine this.

There are 1,000 stocks in the Index.

If 50 to 100 stocks are making 50-week highs, which stocks do you pick?

Do you just put a blindfold and throw a dart on which stock to buy?

Of course not!

What we’ll do is we will use a stock filter that ranks the strongest stocks over the last 50 weeks.

A stock filter will help us filter out the strong stocks from the not-so-strong stocks.

For risk management, it’s pretty simple.

Risk management: 5% allocation of capital per stock with a maximum of 20 positions

Why a maximum of 20 positions?

Simple, 5% multiplied by 20 equals 100, which means all of your buying power will be used up!

That’s right; there’s no leverage involved for this system.

For example, you have a capital of $100,000.

What you’ll do is you allocate $5,000 to each stock.

But you might be thinking:

“Wait a minute, how do I know how many shares of stock can I buy?”

Let me show you.

Just take $5,000 and divide it with the stock’s price.

Now, let me give you a few charting examples so you can see how this works

Example

This is a chart of SPLK:

breakout trading system,breakout strategy

See that blue line on top?

Good, because the Donchian Channel indicator shows us the 50-week high with ease.

Pretty cool, right?

To set it up, just:

  1. Pull out the Donchian Channel indicator
  2. Set it to 50-period
  3. Look at the weekly timeframe

Now, as you can see, the price closed above the 50-week high in this candle over here:

breakout trading system,breakout strategy

So, at this point, this stock has met our entry requirements.

Nice!

What you’ll do is to enter on the Monday open, which is this candle over here:

breakout trading system,breakout strategy

What about stop loss?

Again, very simple.

Use the Donchian Channel again, but change it to 40-period and show the lows.

That would be your stop loss:

breakout trading system,breakout strategy

When you see this on a Friday, do you exit immediately?

Nope!

We wait until Monday to exit our trade, remember?

So, on Monday open, we exit the trade at the current market price:

breakout trading system,breakout strategy

Pretty simple, right?

Now, let me share the backtest results of this trading system.

Because that’s what you’re here for, right?

Results

Here are the results of this trading system over the last 31 years:

  • Net profit: 5,024.57%
  • Winning rate: 48.75%
  • Losing rate: 51.25%
  • Average profit: 62.42%
  • Average loss: 11.81%

As you can see, you lose more than half of the time.

But the reason why this system is profitable is that when you win, your gains are much more significant than your losers.

It means the system has an edge in the markets!

Now let me share the full breakdown of this trading system results with you.

Because some of you might be thinking:

“Ah, you simply plucked all these numbers out from thin air; you’re a scam!”

I get that a lot.

So, to dispel skeptics out there here’s the historical performance of this trading system over the past 31 years:

breakout trading system,breakout strategy

In 1990, there were no returns because the Russell 1000 has closed below our 100-week moving average trend filter; remember that rule?

It means that when the market is in a recession, we stay in cash and don’t take trades.

Of course, there are years where you got super crazy returns, like 53% back in 2010.

Now let’s walk through some other statistics this system offers:

  • Annual return: 13.53%
  • Number of trades: 601
  • Average profit: 62.42%
  • Average loss: -11.81%
  • Maximum drawdown: -37.00%

so, you can see that this system pretty much beats the market.

If you want to look at it at the equity curve right since 1990, you can see that it’s pretty much sloping up higher the equity curve:

breakout trading system,breakout strategy

This equity curve tells you that this system still works even today!

The question now is…

“What if I don’t want to be a systems trader?”

“How can this help me as a price action trader?”

Let me tell you in the next section.

Lessons

Number one.

What’s high can go higher

Whenever you see a stock like this:

breakout trading system,breakout strategy

What’s on your mind probably is:

“Oh, Rayner, the stock is so high!”

“It’s so expensive!”

“I can’t buy right now; it’s about to reverse and about to make a pullback!”

Well, based on the data I just shared with you…

What’s high is likely to go higher.

Of course, this principle doesn’t work 100% all the time as there are pullbacks along the way.

But more often than not, a high stock is likely to continue moving up higher.

so, if you’re a discretionary trader, price action trader…

You can look to employ a breakout trading strategy in strong trending markets.

Next one…

Trading doesn’t have to be complicated

As you’ve seen, the trading strategy I just shared with you pretty much boils down to this:

Buying high and selling higher.

We’re buying breakouts and then trailing our stop loss and exit when our trailing stop loss is hit.

So, trading doesn’t have to be complicated, especially when you’re trading based on sound, proven principles!

What’s difficult, however, is trying to stick to the rules.

Will you still stick to your rules and not break them when you are on a losing streak?

Or will you sabotage yourself and look for a new trading strategy?

Only time will tell…

Reviews

explanatory understandable

Rated 4 out of 5
August 1, 2022

I am thrilled with the simple explanation of Rayner Teo. Great teacher and trader.

Raphael
  • Thank you master Teo, your organization has made my trading journey promising, pls I have a question, is the 250_day moving average the same as the 50_week moving average or Is the weekly moving average different from daily

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