Monday, April 18, 2011

Trading TTR breakouts

Breakouts are the hardest to predict and trade correctly and most people are better off simply taking the first pullback after the breakout. However, its possible to correctly read and trade breakouts in some cases such as today's extended TTR between bars 28 and 46.

The first clue was a channel move to the ema and three successful closes above it after three pushes down.  The market then tried to sell off three times and failed. The first signal was an oio at b30, the second was an A2 variant at b34 and the last was an A2 at b43. True, they were all poor signals, but given the tenor of today's open and early move there was a good chance one of them should have at least given a scalp.

An extended TTR breaks the trendline even if the price had not done so explicitly at b24 today. b46 completed 2 legs down to a higher low. After multiple failures to continue in the previous trend, the price is likely to breakout and move upwards for at least two legs.

b46 was a weak bar if you judge it on its own but in the overall market context, it was a double bottom (with b25), a failed breakout (fBO) of the prior swing low and an A2 since its a two legged HL after a possible reversal (3 pushes down to a reversal bar at b20). Cautious traders can buy the next bull bar (b47) as long as its not too large.

Note that this is a specific case of TTR trend break and reversal after an extended move (b1-b20) and not to be applied anywhere you see barb wire. For most BW, you are better off fading a trend bar break out of the BW.

Getting into the right side of a breakout requires lots of experience and most traders can simply take the BP at b56 or b61 (which was also an A2)

There is one shortcut you can take if you recognize an extended TTR break of a trend. You can simply buy above any swing high (b47 or b42 depending on how liberal your read is) with a stop below the recent swing low (b46). You should move the stop below the entry bar (b49 or b51) as soon as it closes.


  1. Can you please explain why you took the 1 Rev? I would have never seen that! Is it an overshoot or is there any other criteria that you took the trade? Why did you take it on the doji signal bar?

    Sorry, one more question! Why not take the bar 14 reversal since it is in a bear trend?


  2. b8 was a deep overshoot and since it was 2 legs down, a possible reversal candidate. Sometimes there is one more push as we saw this day.

    b14 was an ok signal. It was a doji bar inside another doji bar after an up channel. There is some risk of another leg up given ema was very close.