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How To Trade Break Out Formations
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How To Trade Break Out Formations

by The MoleMarch 30, 2017

This is going to be a bit of quickie as I find myself short on time ahead of the opening bell. But if you have been around the block a few times then you know that quickies can be quite fun. And we both you know you’re easy!  

Today’s formation on the E-Mini is a great study piece as it paints a textbook break out formation which often can successfully be leveraged as an entry opportunity. For some reason however many retail ratlings seem to repeatedly be missing out as they are unsure as to where exactly to enter. Let’s set the stage:

2017-03-30_spoos_question

Quite frankly this is as textbook as it comes. Clearly what we have here is a touch of the lower 25-day SMA, which at first sight looked like weak technical context and thus was not suggested as an entry opportunity by yours truly earlier this week. Nevertheless I’m already positioned long since Monday after a speculative entry signal courtesy of the Zero indicator (you ARE a sub right? If not read this).

As a sidenote, since then I have received several inquiries as to whether it is too late to go long here and/or if I am still holding my position. Answers: NO, and YES – so rejoice!

Now I can already hear your little rodent brain rattling. “Is this a good entry opportunity?”, “Is it too late to enter?”, “Do I wait for a retest lower?”, “Do I wait for a breach of the recent spike high?”.

And here are the respective short answers: YES, NO, YES, YES.

I can understand how this may be confusing to you and I promise I’ll explain this in exhausting detail below – in the subscriber section. Sorry I cannot give it all away for free as the lair doesn’t run itself and those damn sharks in our moat need a new set of laser beams.

2017-03-30_copper_update

Now if that ticks you off then this will most likely push you over the edge. Here’s an update on our copper entry from last Tuesday. And yes it was (drum rolls) posted to the subscriber only section. Well we were hoping for a drop toward 2.62 and actually snagged it – just barely. By the way as a rule if you’re not being filled after a quick spike below your threshold then it’s usually okay to chase it up a few ticks. Yes, it may come back down and you missed a better fill but often you wind up missing out on a good campaign, especially on thinner contracts like HG. For me entry thresholds are ranges – not exact price points.

Anyway, let’s advance our trailing stop to < 2.653 – be generous – you  know make that < 2.65. We are now in very good shape here and don’t want to get shake out too early.

2017-03-30_crude_update

Still here? Well, then how about crude, which I didn’t get a fill on but I’m sure that some of the subs did. And what a beauty it has turned into. If you’re long this puppy then move your stop to < 48.27, which is the most recent spike low.

Alright, here’s the solution to today’s puzzler in all its glory:

evil_separator

It's not too late - learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don't waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Please login or subscribe here to see the remainder of this post.

So which one do you pick? Well actually you can run with all three scenarios and this way scale yourself into the position slowly. In case you missed it – I wrote a pretty nice post on the subject which shows you the math involved. Have fun but keep it frosty.


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    broken support should become resistance.

    I stopped watching prison break after season 1. not sure why.

    https://uploads.disquscdn.com/images/43e4b38be591962e980c687fe7afba732e664da809f1254279f3ea4e1d3c8ded.png

  • http://evilspeculator.com Sir Mole III

    Because it SUCKED afterwards. Very good choice, sir!

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Much too kind. but I recall it was due to a certain blonde.
    😉
    https://en.wikipedia.org/wiki/Battlestar_Galactica_(season_1)

  • Mark Shinnick

    Gold having its problems against $ at important inflection.

  • Trouzzer_Snake

    I got long ES right before open at 2355. Zero not showing any participation which is a little un-nerveing.

    Another factor I took into consideration was the current daily bar. It had already breached the IP higher but failed to go higher and was retracing. I almost looked at going short with a tight stop but then thought about how that candle would have best ended.

    A huge bearish “magic” OP candle right after the bears blew it just a few days ago.

    I didn’t think there were enough bears left after the recent stop runs to make that possible so went the other way.

    So my question is am I mentally masturbating here, or effectively using some of Scott’s tape reading musings?

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    ‘magic’ OP candles and thinking of bear quantities?
    Subjective wording. keep trying.

  • Mark Shinnick

    Doesn’t some of that at times seem a bit rhetorical?

  • Trouzzer_Snake

    In what way? How I wrote it out or the thought process?

  • Trouzzer_Snake

    The OP comment was in jest…but Scott seems to look at candles for psychological context as much as technical set-ups no?

  • BobbyLow

    Sometimes this business can be like playing Chess, Checkers, Monopoly and Russian Roulette all at the same time. I can’t help but smile a little at the price action of Natural Gas right after the Thursday 10:30 AM Storage Report. I had decided that it’s best for me to hold through the report in the long run and I did so. I didn’t have a hard stop in but if I was going to have one it would have been $20.05 on UGAZ.

    Just prior to the 10:30 AM Report, I would have had about .75 worth of room to my stop (if I had put it in) so I watched the price action on my chart at exactly 10:30. Within 5 Seconds there was like a heat seeking missle that sent price down below what would have been my stop and held it for about 2 Seconds. Then price began to drift all the way back up and beyond. UGAZ is now Green and trading at $21.40 last print.

    So what’s the point? The point is that hard stops are necessary if I’m not going to be around to close my position when I need to. But Hard Stops can also be the Dark Side’s Fuel to wipe out unsuspecting positions during situations just like this one. JMNSHO

  • ridingwaves

    I should have had a say in that UWT….damn setup that I scared myself out of..
    and biotech/healthcare is now getting pushed around

  • BobbyLow

    You did fine on both accounts.

    BTW and FWIW, I tend to write long explanations of questions as well as long explanations of what I think might be answers to someone else’s questions. Most of the time, I write what I write as a learning experience for myself. Sometimes what I write helps others. And sometimes there are people who might not like what a write and I don’t care. :)

  • BobbyLow

    Yeah that one would have really paid off. But at times like this it’s best to think about the old saying “It’s better to wish you were in a trade as opposed to wishing you weren’t.” :)

  • Mark Shinnick

    Aren’t we all already dealing with confusion market phenomena …then compounded by our own delusion or imperfect tools?

  • http://greenlander1.blogspot.com/ Greenlander

    I’m very long oil exploration/ energy now. APA, CHK, MRO. Going to add the last portion soon w COG, DVN. I missed COP which was on the radar.

    Very long still and other than energy, evenly split btw SNAP, LVS, BIDU

  • ridingwaves

    not this time, as I saw the gap close from Nov., that I had worried about and even reflected to you in comment a month or so…I should have taken it….

  • ridingwaves

    interesting-vix components are up 2% while vix is flat, usually the other way around….

  • Mark Shinnick

    Short miners, tight stop.

  • Trouzzer_Snake

    Agreed! But I’ve also fallen into the mental trap of letting it go just a couple more points, then maybe a couple more to see if it will spring back like last time, before I know it my loss is way more than if I had a stop.

    Personally I don’t trust myself to manage it properly so set my stop where it looks logical, then pad it by a few more.

  • Mark Shinnick

    I was seeing vol at support yesterday so may be rebuilding contango there. Short Term base vix is challenging local downtrend.

  • Trouzzer_Snake

    I like the cut of your jib, sir.

  • Trouzzer_Snake

    Does anyone here use thinkscripter indicators? What combos do you like? I’m using TS_Renko and TS_Choppiness index and like what I’m seeing.

  • http://greenlander1.blogspot.com/ Greenlander

    For you action junkies, SNAP. Target 28-30. Not my idea but I like it https://uploads.disquscdn.com/images/abd76e54475fab96b171574944c98fa2f9fb6cb19cf1859c35c164a2bad80d77.png

  • BobbyLow

    Yes, that’s always a potential problem. I also think a lot depends on the size of your position. If I had been sitting on a couple of contracts of /NG, a .10 Cent Move would have represented $2,000 and that’s a different story.

    But even with the volatility of the 3X UGAZ, the amount of movement is a drop in the bucket compared to the $ movement of /NG so it’s a different playing field. I’m trading off of an Hourly Chart so my Stops are wider to begin with. I also try to wait for the close of a candle before entering and exiting even if it goes through my stop. (Unless it’s a run away frieght train)

  • Mark Shinnick

    Standing aside.

  • Mark Shinnick

    I don’t…in fact I don’t often use much of any at all compared to most strict reference to price itself. A combination of derivative indicators may seem alluring, but for me has never worked out that way.

  • Mark Shinnick

    Reentered short.

  • http://evilspeculator.com Sir Mole III

    What are your entry rules?

  • http://evilspeculator.com Sir Mole III

    Yo – I used to code in ThinkScript but it’s a PITA and quite frankly you may as well pull a copy of NinjaTrader and learn some basic C#.

    Show us what you’re plotting if you could.

  • Ronebadger

    speculation

  • Trouzzer_Snake

    Here is a screen shot… To be clear I bought these from thinkscripter.com if you are familiar. I don’t write them myself.

    I use 20/60 EMA and 50/100 SMA for my “lens”

    https://uploads.disquscdn.com/images/50dfae81d8c072aaa2ce46e7e70a6014153198cb46bb3dac93f9db34d8406814.png

  • Mark Shinnick

    Standing aside.

  • Trouzzer_Snake

    Selling 1/2 my ES position here… Trailing stop applied to the rest.

  • Mark Shinnick

    Short.

  • BobbyLow

    Man, that’s a lot of work. Reminds of back in the early 2,000’s shooting 1,000 share trades of the Q’s looking for 10 Cents 5 or 6 times a day. It was exciting but by the time 4 PM came I was totally drained.

    I’ve been short with DUST since Monday at $29.04. :)

  • Mark Shinnick

    Really is, but its tempered by doing so at mainly important inflections for a given market otherwise I’d fail, usually from lack of rest. Looks like range breakout for you pretty soon?

  • BobbyLow

    It’s very close Mark. But it probably needs to retest today’s high of $32.15 and have a little stickum above that price first. But as you know this thing is pretty crazy and if Gold turns back up, DUST will probably head back down and it’ll be time for NUGT again.

  • Mark Shinnick

    All this opportunity is really great :) That short fizzed so exited.

  • BobbyLow

    Closed Long Silver +2R. It didn’t really hit my stop but price appears to be rolling over so I’ll take profit now and look at it again tomorrow.

  • BobbyLow

    That’s for sure. I never thought I’d be taking on a steady diet of the 3X’s. These things really move regardless of the timeframe being traded and have been an excellent fit for me.

  • Scott Phillips

    Personally I trade in the most boring, objective, dumbass-could-do-it fashion you could imagine.

    My trading is so simple that when I go on holidays I just hand my systems to Daniel and he executes them perfectly, every time. You could literally step into my shoes tomorrow and work my systems, it might take you longer than me but you could do it.

    Everyone likes to get complicated reading the tape, and sure I can do that too. But it’s not the main game. An amusing trick at best, and not that useful. Gabriel’s tape reading sucks ass and he posts regular > 100% years.

    For most traders learning to read the tape is an excuse for not doing the real work of building a system. Look at any trading community, the best traders will be the ones with systems. Here, the slope, anywhere, you want to do what the guys making money are doing.

    The guys who sound the smartest will be guys who talk about what this means and what that means. The guys who make the most money will be “my rules told me to get long here”.

  • http://evilspeculator.com Sir Mole III

    So how do you use this beast? Paint on the chart for clarification please.

  • http://greenlander1.blogspot.com/ Greenlander

    discretionary trade but some things I was looking for

    -betting within short term trend
    -min 4R-5R target
    -at least 3 days of subsiding volatility/ volume in a consolidation pattern
    -over confident sentiment on news, stocktwits, yahoo, etc opposite in the direction of where I want the trade to go (this one is critical)

  • Scott Phillips

    For a start its not a trend, at all. It’s a massive pop, drop, and now epic confusion from both sides.

    Keep in mind there is 3 weeks of trading history for this stock ever. It’s also one of the most heavily watched IPO’s in history. There are “Ha ha haters”, pre IPO holders at below $17 who might be nervous, and people who bought on IPO day who are having second thoughts after being underwater.

    There are people who are cheering for it to be going up, and down. It’s a choppy mess of emotions and publicity. And the chart is a choppy mess also.

    It might go up, it might not. But there is no denying its a choppy mess

    https://uploads.disquscdn.com/images/d2578935503cd1bf6071a0f611e2ec9196fbe6214ac05931185ee568b82a2c3f.png

  • http://greenlander1.blogspot.com/ Greenlander

    what has happened since the 17th?

  • Scott Phillips
  • Scott Phillips

    It is higher than it was on the 17th

    If we measure since the 13th its lower.

    If we measure since IPO it’s way lower.

    Instead of looking at the price, which is childish and simplistic, how about looking about HOW it is going up. Is it going up in a fashion consistent with a new uptrend?

    The last 5 trading days
    up
    down
    up
    down
    up
    down

    You literally could not get more choppy than a week long series of up/down/up/down

  • http://greenlander1.blogspot.com/ Greenlander

    You are missing the point in looking within the chop. In itself is not meant to be actionable. It’s only meant as an inflection point.

  • http://greenlander1.blogspot.com/ Greenlander
  • http://greenlander1.blogspot.com/ Greenlander
  • Scott Phillips

    LVS – Monthly chart I see something that used to be a trend which is either becoming a trading range, about to complete the shoulder of a HS pattern, or about to continue on to fresh highs. You could torture it to support any case you want which usually means the odds of all 3 things are about the same.

    Daily basis its a CLEAR trading range and near the top of its trading range https://uploads.disquscdn.com/images/8dfdcbe20a2a3e5a969308edcc1629f753b08b2a0fe1f8f280ca068134fc9fb0.png https://uploads.disquscdn.com/images/d25d41f00d142e28d0fbded4d064730720b1606ebe40d65d59e866196e013044.png

  • Scott Phillips

    No I think *you* miss the point. Typically markets go through phases of being easy to trade, followed by periods of being hard to trade, full of choppy bullshit and directionless fakeouts.

    Once markets start behaving choppy, they tend to behave like that for a long time. At that point they become a literal war of attrition, over when one side is too exhausted to continue.

    The exact OPPOSITE of an inflection point.

    An inflection point is where you have an outsized risk reward opportunity. Like previously at the lows of that trading range – excellent risk reward. Arguably you have that risk reward op to the shortside here, but really, there are better trades available. It’s a coin flip. Could break out, could fall away, other timeframes give no guidance.

    Like a lot of charts, this one could do anything and I have no idea.

  • Scott Phillips

    Bobby is probably the best trader this blog ever produced. Complete professional in all aspects.

  • http://evilspeculator.com Sir Mole III

    If the trend is not blatantly obvious to a six year old then I usually stay away from labeling it as such.

  • http://evilspeculator.com Sir Mole III

    Hey guys – I’m working on an EOM momo update. Need a bit more time… probably half an hour or so after the bell.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • Mark Shinnick

    Long miners. Objective very close because of tightening range. This could reverse quickly. Its as though they’ve been playing dodgeball with the $.

  • http://evilspeculator.com Sir Mole III
  • Mark Shinnick

    So, 50% out of that, most objective reached.

  • http://greenlander1.blogspot.com/ Greenlander

    When trends are blatantly obvious, that’s when I am more cautious bc more people will place their bets accordingly. That’s why I am interested in this trade. Obviously one week of price reversal doesn’t make a ‘trend’ if you look at textbook definition.

  • http://greenlander1.blogspot.com/ Greenlander

    https://uploads.disquscdn.com/images/b84365f452cba0d4c6fb007979db35cde78d4f9c0898a4ca3d83acaabd865979.png

    yellow is what I would call inflection or potential pivot. especially the second yellow box. Going long on the first one could be seen as more risky as up trend less established

  • Mark Shinnick

    Good strength appearing to go to next objectives so 100%

  • Mark Shinnick

    Ok, so flat, and we are still within inflection for a later bear move.

  • http://greenlander1.blogspot.com/ Greenlander

    https://uploads.disquscdn.com/images/0993e369ad102ad9e05e4a7c11315cbda47ee59a69082612b15656e08ddfce8a.png

    also factoring in sentiment here. This is the worst I’ve seen for something with a lot of eyeballs on it since WFC in Oct.

    On the first strong move up since the low, SNAP produced a volume pop on the daily not unlike the first days when LVS move up and out of its respective consolidations.

    Not saying this is an easy trade but there is really big upside if one considers some recent IPO’s like TWLO, ACIA, etc and going back to TWTR. some early chop and really big run ups. Then the shit hits the fans for a multi mo swoon.