Monday, August 15, 2011
Failed breakouts and Breakout pullbacks
On a trading range day, a failed breakout such as b26 may be traded if the signal is strong. I often pass up the setup if the move I'm fading is channel like and wait for 2 failed attempts to continue the move first (b30,32). This is because the first attempt to fade the channel will usually fail.
On the other hand if the breakout gives a poor signal bar (b60) or does not trigger (b65) or otherwise fails twice to move back into the range, I will usually look for BP instead.
A second option is to recognize failed L2s as a soft trend move and buy above the next signal bar (b36 or possibly b38, b53, b73). The brave can buy the close of the second attempt on limit with a stop below the next lower bull bar or a tight money stop.