I often talk about my favorite trade setups. A setup that I find to be incredibly reliable is the move in the opposite direction that occurs after a failed breakout. The way today’s Crude Oil Inventory session worked out was a great example of that.
Failed Breakouts
- Clear support or resistance level
- The price breaks through but then falters
- The price starts moving in the opposite direction
- The move in the opposite direction is a reliable move, with strong odds on our side
- The opposing move is often strong and if ever you wanted to trail, these can lead to homerun trades
- You can learn to look for these and specialize in them
- Novice traders often try to trade the initial breakout. Sometimes these will work but I find the opposing trade gives better odds and winning opportunities.
In today’s live #traderoom session, Crude Oil had been trading with lousy, flaky price action throughout the morning. After the report came out, it continued to trade in a directionless manner. We waited our 2 minutes and our first setup actually occurred as the price action retested the lows of the range that the report had established. We had a short setup and adjusted our entry a tick below the lows of that range.
“Let’s at least see if the sellers can push through the level, I thought.” No point in trying to get short 2 ticks above support, right? Well, it didn’t matter because it did push through regardless, triggered us into the short, but then faltered. No follow through! The price started moving strongly higher. We got a stop and reverse long setup, which cut the loss on the short trade down a bit and got us onto a winning long trade which ended up being a very strong move — relatively speaking.
The failed breakout to the downside, led to a nice strong move to the upside. If you learn to look for these types of occurrences, you can start to specialize and only focus in on them. Your win rate will go way up. It just takes patience. But failed breakouts do happen all the time, on all charts and timeframes so if you watch your handful of favorite charts, you’ll find your trades and will be as active as you want to be.
Better if you have a great strategy that prints accurate trades right on your chart, like Counter Punch Trader, or ever better, Spotlight Power Trader.
Trading is all about establishing the kind of lifestyle you wish to live, and that’s what the Backpack Trader is all about. Freedom!
Please remember to give this video a thumbs up and to subscribe to our YouTube Channel, Netpicks Trading Desk.