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“This is the bullish tidal wave I’ve been waiting for and I’ll jump right in!”
When you hop on, you’re quickly in the green and you foresee yourself smiling to the banks.
Well, all is good until that bullish wave crashes – leaving you bleeding in the red.
If that’s you, then it’s time for you to tune in to today’s episode.
You’ll learn how the pros trade breakouts with low risk and massive returns, without ever needing to chase breakouts like a loser.
So listen to it right now…
The Price Action Trading Strategy Guide
The Complete Guide to Breakout Trading
The Trend Trading Strategy Guide
High Probability Trading Strategy — A Complete Guide
Hey, hey, what’s up my friend?
So in today’s episode, I’ll talk about why you don’t want to be chasing breakouts in the market – that’s for losers, so do this instead.
Firstly, let me talk about why you don’t want a chase a breakout.
Here’s the thing…
When you chase a market which breaks out and moves a lot within a short period of time, the problem is you don’t have a logical place to set your stop loss because the market has moved too fast, too soon.
If it’s a bullish breakout, the nearest market structure (support or swing low) is darn far away.
And if you have a huge stop loss, you have to reduce your position size. If not, your risk will be out of whack.
But if you reduce your position size, it’s going to take you a long time before you even hit the 1-to-1 risk-reward ratio.
Usually when the market has already “exploded”, it’s too late to enter the trade.
Don’t chase this type of market move, it’s not worth it.
So what should you do instead?
Well, there are 4 possible scenarios that you can look to trade after the market has made a huge move.
Let me explain…
1. Wait for the first pullback
If the market breaks out, there’s a good chance that it will stall because it cannot go up forever.
Eventually, it needs to take a breather and rest awhile before making the next breakout.
If the market is in a strong trend, you’ll notice that the price starts to consolidate, forming something like a bull flag pattern.
But be careful not to enter too early.
So this is where the 20 period moving average can help – you want to let the 20 MA catch up with the price.
Because by the time the 20 MA has caught up with the price, that’s where the market has already consolidated for a while, (usually over 7 to 10 candles).
After the market has consolidated, then it’s telling you that it’s getting ready to break out higher again.
What you can do is buy the break out of the swing high.
So the first thing you can do is – wait for the first pullback.
2. Wait for price to retest the previous market structure
Sometimes the market doesn’t give you a nice tight consolidation to buy the breakout.
Instead, it retraces back to the previous resistance turned support and retests it.
For example, if the price breaks out of resistance, it moves higher and retraces down lower to retest previous resistance turned support.
It is now back to the original breakout point.
You can look for buying opportunities at this area, like:
- Bullish price rejection
- Bullish engulfing pattern
These show you that the buyers are about to come in and push the price higher.
So the second way you can trade is – let the price retest the breakout point (the market structure where price broke out earlier).
3. Trade the highs and lows of the new range
Sometimes you don’t get a pullback nor a retest of the previous market structure.
Instead, the market forms a new range.
So the price breaks out and it forms a new range higher, above the breakout point.
When it forms a new range, you can start to identify the highs and lows of the range.
If you’re bullish, you’ll buy near the lows of the range and look for stuff like:
- False breakdown set up
- Bullish price rejection at the lows
Then your stops can be a distance below the lows of the range.
That’s another way that you can look to trade this market without chasing the breakout.
4. Trade breakouts with a buildup
And finally, the fourth thing is sometimes the market goes into a range and it doesn’t retest the lows of the range.
Maybe it just didn’t come low enough. Instead, it comes near the lows of the range and it bounces up higher, then retraces down slightly lower and bounces up higher.
You can imagine that the price is now forming something like an ascending triangle, a series of higher lows coming into this new formed swing high or resistance.
Now you have a buildup that’s forming. It’s similar to the pullback trade that I mentioned earlier. But this time, it’s a longer-term consolidation.
And again, you can look to buy the breakout of this new high, in anticipation of higher prices to come.
So you can see that you don’t have to chase the markets.
There are many things that you can do to catch the next wave of the move.
What’s important is to understand what are the possibilities that could occur and then prepare yourself for those trading opportunities.
So with that said, I’ve come towards the end of today’s episode and I will talk to you soon.