When breakout fails | stockbee


When breakout fails

Breakout failure is something you have to deal with in swing trading. How you deal with it is important to your success and trading psychology.

GMCR is an example of recent breakout failure. It was an a anticipation setup trading days ago. As a result I got very early entry on breakout day and stock went up 6% after entry on same day. In my way of trading I exit these kind of trades on 3rd or 5th day of entry. 

But GMCR next day went on to give up all its gain. I did get out of the trade with very small profit . Breakout failure like these happen and contrary to what people believe they do not happen as often on well selected setups.

Breakout can fail is no reason not to buy breakouts. Because ultimately it is a probability game. As of now 56% of the trades have worked, so obviously there is positive expectancy to kind of setups I trade and on a longer term 14 years time frame also the batting average of kind of swing trading methods I trade is above 50%. So I can be wrong 50% but still make money as the winning trades make bigger returns than losing trades. 

You can not completely eliminate breakout failures as some of it is just random luck but careful setup selection can reduce the rate. For many people a b/o failure and especially series of failure can lead to loss of confidence in putting on next trade. Some people completely give up trading breakout because of that.

Anticipating a breakout can help in avoiding some failures but as GMCR shows it does not necessarily help. 

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