Your Breakout Strategy Is Failing (Do This Instead)
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#638: Your Breakout Strategy Is Failing (Do This Instead)
In this video:
00:28 – Trader has a failed breakout strategy.
01:33 – False breakouts and low reward:risk trades.
02:23 – I use limit orders and not stop orders.
04:07 – View our new 15 minute Masterclass.
04:25 – Blueberry Markets as a Forex Broker.
05:40 – Real people, community and communication.
So your breakout strategy keeps failing. What can you do to overcome that? If you trade breakouts or you’ve considered trading breakouts, this video is exactly what you need to hear. Let’s get into it.
Traders, it’s Andrew Mitchem here at The Forex Trading Coach with video and podcast number 638.
Trader has a failed breakout strategy.
Just this week I’ve received an email from a trader who said, “Andrew, I need some help with breakouts. My breakout strategy is not working. It keeps failing. I keep losing money. What can you suggest?”
Well, first of all, let’s understand what a breakout strategy is.
For most people, it means that you’re buying at the high of a candle or a range, and you’re selling at the low of a candle or range. So that could mean you look at every 4 hours and you take a buy stop, let’s say, to buy above the high of that 4-hour range. Or you may be taking like the first 10 hours of the day or taking the European session and trading a breakout of that, whatever it is you do.
There are all sorts of styles of breakout, but effectively it means you’re buying high and you’re selling low. So you’re either sitting there waiting for that price to break out of that range and you’re taking a market order, or probably the more sensible way of doing it is to put a buy stop and sell stop in, which means that when the price breaks high or low, the market automatically gets you filled into the market.
False breakouts and low reward:risk trades.
But the trouble is, it doesn’t generally give you a particularly good reward-to-risk. And you’ll find so many times you’ll get false breakouts. The market will move up, get your buy stop in and move up a bit, and then fall back down again. You get stopped out and it just keeps happening.
So for me, I don’t actually like breakout strategies. I don’t think they are a particularly good way of trading. It’s just basically here’s a range and if it goes higher than that, we’re taking buys. If it goes lower, we’re taking sells. It doesn’t have a huge amount of other technical qualities about it. And as I mentioned, it certainly doesn’t, in most cases, give you a particularly good reward-to-risk.
So therefore, for me, it’s not something I really am interested in doing. So a better way of answering the question might be to say what else can you do instead?
I use limit orders and not stop orders.
Now, for the last 20-plus years, I have used limit orders and it’s something that if you don’t use them, I suggest you go and have a look and consider using them.
So a limit order, a buy limit or a sell limit, means to buy below the current price, and a sell limit is to sell above the current price.
And already, if you think about it, to buy below the current price means that if the market should pull back down, get me filled, and then move up in my direction, I’m already massively in reward-to-risk favor.
And if you imagine you’ve got a buy stop and I’ve got a buy limit in, the market moves down, gets me filled, by the time it then turns around and goes back up to your buy stop area, I’m probably already with my strategy in at least a 1-to-1 reward-to-risk trade, if not more, and you’re just getting filled on the trade.
And so the likelihood of me making profit on a buy limit order is so much more than you taking profit, and good profit and good reward-to-risk, with your buy stop order.
So I would consider limit orders. The markets always move up and down and retrace. So in most cases buy limit orders get filled very often and you just find that they work beautifully once you know what you’re doing.
Now let’s say that the market does not pull back and you do not get filled on your buy limit order. Well, that doesn’t really matter, because all it means is that you miss out on the trade. That’s absolutely fine. You know, that happens from time to time. So have a look for buy limit orders and sell limit orders. Your reward-to-risk will improve massively.
View our new 15 minute Masterclass.
In other news, I have made a new short 15-minute-long masterclass this week. It’s now available on our website. It’s on demand so you can go and watch it whenever you like. I’ll put a link to that. I highly recommend you spend 15 minutes, go and watch that and you’ll learn so much about trading on that session.
Blueberry Markets as a Forex Broker.
And if you’re out there looking for a very high-quality forex broker, one I’ve personally used for many years, it’s Blueberry Markets. I find them just really good to deal with, very responsive and if you need help with anything, very quick to withdraw funds and a huge array of markets that you can trade through them, both forex and non-forex, especially on their MT5 platform.
If you’re out there looking for a good broker, just consider Blueberry Markets. I don’t think you’ll be disappointed. And yeah, I’ll put a link to them as mentioned.
Real people, community and communication.
So if you have any trading topics or questions, just like this email that came in about the breakouts, let me know and I can answer them for you on future videos and podcasts just like this one.
So once again, this is Andrew Mitchem here. Enjoy your trading. Potentially use your limit orders. I think you’ll find them a lot more beneficial than your stop orders.
Bye for now.
Episode Title: #638: Your Breakout Strategy Is Failing (Do This Instead)
Find out more about Blueberry Markets – Click Here
Find out more about my Online Video Forex Course
Book a Call with Andrew or one of his team now
Click Here to Attend my Free Masterclass
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