Trading Breakout Strategies — the Dos and Don’ts
The breakout strategies I employ for both the DAX and to a lesser extent the DOW are absolutely fantastic when they’re on a roll.
When they are on that roll you can make a lot of money very very quickly.
Last year I made £20K in the space of about 10 days using this strategy.
I’ve outlined it in full below…
But they do have a habit of occasionally breaking down.
I’ve tried to find reasons for this breakdown.
One suggestion I’ve brokered is both the DAX and the DOW are less efficient when the VIX Index is falling because volatility is the key, and if volatility is being taken out of the market there’s more chance of a malfunction.
I outline that here…
Now I think I’ve discovered another reason the strategy sometimes doesn’t work.
This is relevant to both the DAX and the DOW.
If the breakout to the long side is at resistance at the Globex high, and not just prior hour’s high and low, it seems less likely to work.
And if the breakout to the short side is at support on the Globex low, and not just the prior hour’s low, it seems less likely to work.
I’m not saying it WON’T work, just the odds are a little less in your favour.
The market loves to bounce off the highs and lows of the Globex high.
This is what happened in both the DAX and the DOW today.
So, in future, if I place a breakout order in both the DOW and the DAX and see that either support or resistance is at the Globex high or low, I’ll reduce my position size by half on whichever it is at.
The other side of the position is fine
It could actually be that the reverse trade has a better chance of winning if the other trade is at major support or resistance.
It’s these tweaks and changes that I hope will lead to bigger wins in these breakout strategies.
I’ve also found the DAX works better than the DOW on these breakouts.
Let’s see what happens now these strategies have been employed.
Today I placed a pre-market Globex position on the DAX at what appeared to be a double bottom, bang on 7am.
I got in at 16412 on only a £5 a point position size with a relatively large stop at 16375.
Unfortunately it was not a great support area, the market had been trending down all night and I was stopped out for MINUS £189.
In hindsight this was a bloody stupid trade.
The market was supremely bearish, yet I convinced myself it was going to bounce and bounce hard, when there was no clear signal this would be the case.
The DAX looked sluggish off the open, not great for a breakout strategy.
After a couple of minutes I closed both orders
I’m glad I did, it would have lost both ways.
See above for the reason why — it was hitting major levels of support and resistance.
On the FTSE I then bought close to support at the low of the day.
Twenty five minutes later it still hadn’t really moved so I got out for a small MINUS £22.50 loss.
The DAX was looking bullish about half an hour into trading and I went long below the low of a prior bar.
We went higher but there was no breakout and eventually I got stopped out for zero.
Meanwhile the FTSE was just bottom feeding, literally chugging along at the day’s lows.
I had another nibble again at the DAX.
It looked like it wanted to move higher — though wanting and doing are two completely separate things with this market.
I bought at 16404 and ADDED to the position at 16426, but I was very aware that this market what whipsawing, but the second entry was a school run long, so I felt it had some potential.
I closed both entries for PLUS £1,080 and PLUS £55 respectively — I so needed these victories, I also needed a runner which I hadn’t yet got.
A runner could get me up to the £70K zone and then we’d be onwards and upwards to my all time high of £80K, which seems such a long time ago now.
But I was done for the morning.
No runner for me yet.
Rather like yesterday I’ve had a good start, PLUS £923.50 for the morning.
But the market really was giving me nothing.
The FTSE off the open had retreated into a tight trading range…
And the DAX had no follow through, just retracement after retracement.
Great for scalpers, not so great if you’re solely focussed on breakouts as I was today.
Would we see a repeat of yesterday where I gave all my gains away in the afternoon session…and then some?
Quite possibly.
The DOW breakout lost for MINUS £180 — there was no real reason for this loss, just bad luck.
I then went short the DOW at close to resistance only to see it break resistance and stop me out for MINUS £390.
My DOW trades since the turn of the yar have been awful.
Then came the most frustrating trade of all in the NASDAQ.
I went long below a prior bar low and caught a reversal, only to be stopped out for zero a couple of bars later when, quite obviously I had moved my stop to break even far too quickly.
I then went long a pullback bar on the DOW and the NASDAQ.
The DOW took me down to support.
If support held I’d be okay.
The NASDAQ took me down too.
Calamity loomed.
I was facing another disaster, like yesterday.
Then they reversed.
I was looking at a potential £1.2K loss at one stage.
Now, things were looking up.
As the DOW came to break even I closed it for MINUS £5.
It really did look range bound and I was relieved to be out of a rade that moments earlier had been MINUS £650 and within a whisker of stopping me out.
I then closed my NASDAQ trade for PLUS £350.
I sort of lost my nerve on this but, even though I ended up a small loss in the afternoon, I was still up overall on the day.
But I need bigger wins to offset some of my big losses.
Otherwise I’ll slowly bleed out.
Tomorrow I’m trading the DAX breakout at £50 a point and the DOW breakout at £12.50.
On normal trades I’m going £75 the FTSE, £50 the DAX, £25 the NASDAQ and £12.50 the DOW.
Today’s profit = PLUS £698.50
DAX OPENING RANGE BREAKOUT = PLUS £979.70
DOW OPENING RANGE BREAKOUT = MINUS £144
FTSE = PLUS £450.25
DAX = PLUS £3,166.50
NASDAQ = MINUS £2,121.50
DOW = MINUS £4,282.75
US500 = PLUS £256
GRAND TOTAL = PLUS £64,168.04 (include £4,000 profit take = £68,168.04)
Quote of the Day: ‘The market can remain irrational longer than you can remain solvent’ — ANON
Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading involves risk, and it is important to conduct thorough research and seek professional guidance before making any investment decisions.