Breakouts and pullbacks are both points of entry. A breakout is when price sets a high and or low and later pushes through (breaking out) setting a new high or low. According to my personal trading plan, trading breakouts are more of an aggressive entry point due to the potential for false breakouts and possibly poor risk - reward. It is vital to wait for the breakout candle close before entering, (It is not considered a true breakout until the breakout candle closes) and a lot of times this could lead to a not so attractive risk - reward. On the other hand trading a breakout could give an entry that price might not pullback to thus providing a good entry point. The most important factor of a breakout is momentum some would say volatility but as I mentioned previously I consider volatility the rapid change in price whereas momentum is the direction in which that volatility is moving. There must be signs of strong momentum in the direction of the breakout If not then what looks like a breakout could just be volatility and high volatility with little momentum leads to false breakouts. (I use RSI but You could use any momentum based indicator to gage market momentum and just by waiting to for the breakout candle to close is a sign of momentum the higher or lower the close from the breakout point the stronger the momentum. VS. Pullbacks: After price makes a clean breakout, Its a very high probability that price will return to (Or Around) the breakout point. In my personal trading plan trading a pullback is considered a conservative point of entry. This is due to the fact that given price made the breakout providing a directional bias, entering in on a pullback could provide better risk - reward. Pullbacks can appen very quickly or they could take awhile and possibly could never occur at all. on pullbacks I like to see momentum winding down kind of gearing up for the next push. Know the market condition and implement the appropriate entry point into the strategy that best fits.
I just want to add this up, in case if there are any newbies reading your great article:- I used EMA50 for filtering when to use Breakout or Pullback game plan.
"And the result is Brilliant" (So far, this technique is applicable nicely when you trade stocks)
Initially, check what's the index your stock are in, like Dow jones or Nasdaq etc..
(S1) If the index is above EMA50 (with positive momentum), Breakouts work really impressive.
(S2) If the index is below EMA50 (with negative momentum), then Pullback is a much better way to go
asharifan
⋅
thanks for great definition ....in my personal experience the best entry is a retest or the 1st pullback even if you trade breakout .
I used EMA50 for filtering when to use Breakout or Pullback game plan.
"And the result is Brilliant" (So far, this technique is applicable nicely when you trade stocks)
Initially, check what's the index your stock are in, like Dow jones or Nasdaq etc..
(S1) If the index is above EMA50 (with positive momentum), Breakouts work really impressive.
(S2) If the index is below EMA50 (with negative momentum), then Pullback is a much better way to go