Most of the trader’s waist a lot of their capital, energy and time for trading the swings in the market. Sometimes the market structure is swinging and swing trading can give the results in the near-term if you have the required discipline and the focus. But after the consolidation swing period, high probability trade setup is coming either the market is trending or it is reversing. It is called a breakout and it is a high probability trade setup which can bring you sometimes even 1:5 risk to reward.
You are probably all aware of it but most of you have the trouble to recognize it, find the key level to watch price action at, and to apply the proper trading strategy. We were using our usual top-down trading analysis, for this breakout example.
1. The first step is to identify the key levels using the top-down analysis (analyzing the charts from higher time from monthly, weekly, daily)
S&P500 recently gave traders a chance to trade the downside breakout from the topping formation. But it was hard to identify the breakout level. Looking at a monthly chart we could see the final wedge formed giving us the 2630 level as the key for a downside breakout or the upside reversal.
Looking at the weekly chart 2630-2700 zone is confirming the monthly view. There was a clear horizontal resistance and an uptrend wedge line confluence. It was needed to wait for a confirmed daily close below the 2650 level for entering a high probability short trade entry.
2. A second step is waiting for a daily close below the breakout level with the second daily candle confirmation.
After the heavy consolidation swing period between 2630 and 2800 level, traditional traders that have patiently waited for short trigger entry finally got the long red breakout candle below the 2630 level. After the first one, we got the second confirmation candle, and there was a high probability trade entry call.
3. The third step is trading entry
After the first daily candle closes below the key breakout level 2630 it is always advisable to wait for the second confirmation daily candle for a trade entry. That is how you would protect yourself from a false breakout which could happen. Near the end of the second-day short trade entry has to be placed as it is indicated on the chart, with the stop loss just above the high of the second confirmation candle. The risk for this breakout trade was 70 points and the reward was 200 points giving us 1:3 risk to reward.
It looks easy when it is shown like this. But identifying the key breakout level and waiting for setup is not easy. It requires the skill and disciplined approach. This is one of the strategies that we are teaching our traders that are the part of Funded trader program.
Through time we have developed a very respectable trading strategy which defines Entry, Stop Loss and Take Profit levels with high accuracy and allows you to make position risk free. We are publishing daily and weekly analysis and 5-10 trade alerts per week directly on your mobile device via Private Telegram group! NOW! NEW! Enhanced membership plans for new members
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