Wednesday, 12 July 2017

Anticipating breakout (Ant. BO)

You would have probably read about lot of different strategies to trade breakout and you might be trading these breakout strategies.  The problem with trading the breakout is that most of the times these breakouts fail and we keep wondering why the breakout failed.  Even if the breakout is successful, sometimes it may jump the order while breaking out when the prices move sharply with momentum, keeping us away from the good breakout.  These issues forced me to look for a better alternative strategy to trade the breakout.  Now let's discuss it.

Normally once the prices start to form a range, traders tend to look to trade that range whenever the prices break out of that range.  Some traders will even wait further, they will wait for the prices to break out, then confirm this breakout and upon confirmation of successful breakout they will enter into the trade.  The below picture explains this,

In both the cases above, traders tend to enter into the position upon breakout only at higher levels. This strategy of entering into the breakout works wonderfully whenever there is good momentum behind the price moves.  If the momentum does not support, the breakout will likely fail.

We can also devise a different, yet effective strategy to trade the breakouts.  In this strategy we can try to enter at lower levels, much ahead of the breakout, in anticipation of breakout (Ant. BO).  Like this,

Once a good understanding of markets, trend and price reading skill is developed, it is possible to enter into the trade like this in anticipation of breakout.

Another method to buy at lower levels and sell at higher levels in anticipation of successful breakout is to first wait for the range to develop. Once the range develops, wait further for the BOF (breakout failure) at one extreme of range and then enter upon failure of breakout.  Mostly, failure to break one extreme of range often leads to successful break of other extreme of range.  Like this,

Now lets have a look at couple of live stock charts to further understand the strategy discussed above.

It is the chart of KNR Constructions.  As you can see, it did provide 3 opportunities to buy once the range started to develop in anticipation of potential breakout of 216 level.  One can still trade this stock if prices start to get accepted above 216 level.

Here is the chart of HindPetro.  It also gave couple of opportunities to buy on BOF of range low.  One can expect the potential breakout of 390 level in near future.

Now here is the chart of Bank Nifty Future where I tried to trade ahead of breakout, in anticipation of potential breakout.

Hope you would benefit from this post and Ant. BO strategy in your trading, especially while looking for potential breakout.  With this strategy you will always buy at lower levels and sell at higher levels, a much better way to make money.

(please share this post and blog in your circle)