A reader asked why I prefer breakouts and why not buy retracements on 100% plus or IBD 200.
As I have said earlier the exact entry methods play small role in why the concept like 100% plus or IBD 200 works. The vehicle selection in both the cases increases probability of success irrespective of your entry. Those stocks for a specified period have high probability of going up.
But buying breakouts has higher probability of success on such stocks than retracements. There are number of ways to look at it. Prices move in spurts. So a 4% plus move leads to few weeks of move in intended direction. When a stock goes up it attracts more attention and more buyers. That is the visibility effect.
When you are buying breakouts , you are paying for confirmation. Your stops are wider as compared to retracement entry. The risk in breakout buying is , it will fail. The risk in retracement buying is also that it will fail to signal reversal and in fact might be a start of long down trend.
In both entries if it is successful, your trade is profitable. The advantage of retracement is you will quickly move in to profits if the trend resumes. Irrespective of method, you will get stopped out on your stop.
To design retracement based entries, you need to think a logical entry point. You need to use a leading indicator to signal this. Unfortunately there are no perfect indicator.
I have tried many retracement based methods on both the list. Some things which work are based on liquidity going down to signal entry. Especially if you are looking for very short duration trades on 100 % plus or IBD list, you can try entry a day after lowest volume on 20 days. (v=minv20)
I personaly find breakout easier to trade.