Show Me The Money

Breakouts through resistance are the most desirable of all trade opportunities. (This discussion will be the buy opportunity discussion of breakouts. (An equal sell opportunity exists on breakdowns through support). A breakout is a penetration of resistance based on a pricing established over time with price reversals taken place at approximately the same price point in previous time periods.

Sounds easy. Well it sure sounded easy when that guy in the $1000 seminar told me about it. I also read how easy it was in the $90 book on trading that said would make me a wealthy independent trader.

Breakouts are wonderful if they continue. If they fail you can expect the pricing not to trend but to return to a range bound probably touching the lower pricing before it rises again. That price movement is probably beyond your stop loss and you will not be pleased.

This occurs more often than you want to believe. Since so many other people see the breakout they are as nervous about it as you are and you have a larger number of quick exits with the slightest wiggle. This is referred to as “buyers remorse” or a “bull trap”. What this really represents is a serious hit against your P&L.

Remember, breakouts are a product of an established range bound market. The continuation of the sideways market is the rule with a move away from support or resistance back into the trading range. That means a failed breakout is the rule. The breakout is the exception. Some traders believe the reverse is true. That can cost you a bundle of cash in trading losses.

Why do I find this interesting? Last night I was looking around the usual haunts online and what did I find? A conversation between someone whom had just bought a 300 dollar "trading course" and a seasoned trader. The newbie was convinced he could take his 30 grand and turn it into half a million in a very short period of time. The old timer laughed and suggested that Mr. newbie should be ready to loose every penny of his 30 grand. Wow, what a comeback.

I've been in this game for many years now and let me tell you, it's not easy. Most pure daytraders implode in the first 4 months, loosing most of their capital. Yet they hold "money shows" and trading seminars all over the country, and at each one they tell you that all you have to do is pay up the seminar fee and you'll be on your way to making more money than you know what to do with. It sort of makes me ill. Most will fail miserably.

The old timer was right. It takes a long time to understand the markets. Go easy, trade small and research as much as you can. Nothing makes me feel quite as bad as seeing someone with a small capital base and a certificate from a trading "school", go belly up and loose his dollars. Yet it happens every day.

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