Lessons from the Pros

Featured Article

Breakout Trading with an Edge

A key in trading or investing is to keep things very simple and make sure your rules are in-line with how you profit buying and selling anything in life. This starts with simple thinking. For example, breakout trading is a style many traders use as the industry and conventional trading education push this. Exactly when breakout traders enter and exit positions is very well known as the rules for this style are in almost every trading book ever written and all over the internet. Having this information means we know where breakout traders enter and exit markets… all we need to do to profit is find a way to buy and sell before all the breakout traders do so they can pay us and we can keep our profitable edge. Tweet: Find a way to buy and sell before all the breakout traders do. https://ctt.ec/6o2c8+ That is the focus of this piece.

To illustrate how this is done, let’s look at one of my recent trades where the entry was a breakout entry. The large yellow box at the top of the chart is where larger time frame supply was so, prices moving higher was not likely. When price fell from that larger time frame supply zone it began basing sideways. As this was happening, I assessed the profit zone below.

Copper Futures: July 2017. Profit: $4,675.50

What is breakout trading and why aren't breakout traders profitable?

Notice the price action in the circled area. None of that price action represents significant demand. The nearest area of demand is lower where I marked it on the chart. This created an opportunity for price to move from that small yellow box of basing above, down to the demand zone below equating to a low risk high reward and very high probability trading opportunity.

Next, knowing that a downside breakout was likely and knowing that breakout traders would start selling short as price breaks to the downside from that basing above, I followed my rules that allow me to sell short in the base, before the breakout traders do and at a higher price. Notice the area labeled breakout entry above; this is where I sold short. Again, doing this before price breakouts out allows you to get paid from the millions of breakout traders out there. Price then declined from supply to the demand zone below for a profitable trade.

Free Trading WorkshopNever forget, the ONLY way you make money trading or investing is to buy before others buy and sell before others sell. To do this successfully, you need to have a good idea where price is going to turn and where it will go. The market’s supply / demand tells us where these market turns and market moves are going to happen. The key is to stick to the simple rules and don’t over think it. It’s all about where the buy and sell orders are (market turns) and where they are not (market moves). Add to that the simple fact of how you make money buying and selling anything and there is your rule based strategy and edge.

The purpose of this article was to help you focus on the simple realities of making money in the financial markets. If you know where most people will buy, make sure your strategy has you buying before those people buy and at lower prices.

Hope this was helpful, have a great day.

Sam Seiden – sseiden@tradingacademy.com

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

Join over 170,000 Lessons from the Pros readers. Get new articles delivered to your inbox weekly.