January 2012
Intermediate to advanced
624 pages
17h 49m
English
Chapter 3
Initial Breakout
On 5 minute charts of most markets, there are usually at least a couple of successful significant breakouts every day. Most breakouts begin with a single trend bar that is usually larger than the previous bars and has no tails or only small tails. In the strongest breakouts, there will be a series of trend bars with very little overlap. For example, in a strong bull breakout on the 5 minute Emini chart, as soon as the breakout bar closes, some traders will place limit orders to buy at the closing price of that bar. If the next bar opens at that price and immediately trades up without going below that price, the limit orders will likely not get filled and these bullish traders will be trapped out of the market. They will experience a sense of urgency because they are afraid of missing the move and will look to get long as soon as possible, using either a market order or a limit order to buy any one- or two-tick or small pullback, or they will switch to a smaller time frame chart like a 1 or 2 minute, and then enter on a high 1 or high 2 pullback. This is often hard to do emotionally and it is comparable to jumping off a high diving board. What might work in both situations is to just do it: pinch your nose, close your eyes tightly, tense up every muscle in your body, and trust that you won't get hurt too badly and that the bad feelings will end quickly. If you are trading the Emini, you simply buy the small pullback and rely on your stop. If the breakout ...
