Breakouts or Fakeouts

Breakouts

I wanted to take the time to analyze how intra-day breakout charts should look like compared to how intra-day fakeout charts look like. These seem to be the signs I tend to notice before the big move and what I should look out for in the future so I don't miss out. 

Ticker: DSCO

So I chose this chart because it was clearly in a ascending triangle. Today was the day it broke out, but I did not play it since I was focused elsewhere. I think an ideal breakout chart should look something like this. At the end, I didn't want to chase so I just let it be.

I noticed that the range got a little tighter and an ABCD type pattern forming. When the pattern grew a bit steeper, I should have known that a big move was coming. The volume was solid and I should have looked at this as a positive sign. 

Intraday looked perfect. It broke previous resistance with great volume. I dipped and this is where I should have bouggt. I was where I got alerted too. I was blinded and did not even take it. An ideal breakout is one like this, great volume and good patterns. No problems!

Note: It seems like a good break of the previous resistance plus insane volume indicates a good chart. I could have even seen an ABCD pattern here and purchased. It was great throughout the rest of the day.

Ticker: PPP

So yesterday, this chart broke out completely and I missed the initial move. I just got in today @ $3.54. This chart looks pretty good for a nice pop.

I actually missed the ascending triangle forming for this chart because I did not look at the 15 minutes. Look how similar this breakout looks like to DSCO. It was a clear breakout plus the bars were near the upperend of the pattern.

Note: I don't think it matters that much where the bars were before the breakout, but I think there needs to be either a clear breakout or descent breakout with great volume. Anything else could be just a fake.

The volumes here aren't very clear, but the chart tells a different story. Again, volume is just a tool to aid the charts so the charts is the end factor. If there is a clear breakout, then I would have to play it regardless. Any previous days volume seem to affect the performance of the beginning of the next day. For example, the volume seemed to have done well, but it was a grind upwards because it slammed down the first clear break. This seems like an opportunity to purchase the stock at a better price.

Note: Remember, these signals work best for charts that have taken a beating. Not charts that look too overextended.

Fakeouts

Ticker: ZNGA

In the beginning, it looked like it was ready, but there was no clear breakout. I tried to follow the volume, but got burned because of it.

The volume looked decent, yes, but it did not reflect how the chart was doing. For stocks that have a lot of volume, it is better for the breakout to occur than to count on any volume. However, the volume indicated when I should get out which saved my ass.

Note: These are all similar charts, but the ones that broke out was obvious because it did straight out of the gate. The ones that don't are most likely fakeouts.

Recovery - Update 03/04/2015

After a failed breakout, I immediately took this off my watchlist. However, looking back, I should have noticed that it did hold the channel and that was the safest time to buy.

I need to remember that charts could hold multiple patterns and can operate on multiple time frames. Since these charts are hard to find, I need to be aware that a chart could still breakout after the first failure.

Check this out to see what I mean: WEN

Sidenotes

I don't  know how many times I have to tell myself this, but the chart is always right. Volume is only a tool used to gauge the chart. Volume cannot be depended upon. A clear breakout with good volume is great while a clear breakout with low volume means that it can still grind back up. No breakout with good volume just means that it hit resistance.

Breakouts don't usually last unless they look good on the daily as well. You should sell the day of the breakout or a specified time of when you think you should sell. 

Please let me know if you have any comments or opinions. I would like to know if you have spotted any mistakes in my logic.

Lessons Learned

Compilation

I haven't posted anything about my trading for a while because of the ridiculous trades I have done in a short time span. It is simply too much to keep track of and I was also a bit busy with other things like negotiating rates with TDAmeritrade. So I decided to make a compilation of trading lessons I learned from the those ridiculous trades. I hope this helps me review some of the mistakes I made and how to become better. After this, I will continue posting my daily trades. 

Big Picture

Always take a look at the big picture or previous patterns before taking a position. This will let you know how the chart could behave. It will also better help you determine if there is a bear or bull trap coming. It will keep you prepared for the worst.

I wanted to short overnight on the second of February because it looked like it made its move and ready to drop. The trend was a channel and I wanted it to break to the downside for its breakdown. This did not happen so I stopped out. The last bar was the third of February and this was when I wanted to short. What I should have known was that it was bullish and I should be wary of any bearish traps. 

I missed the first half of the day because I was out and came back looking at a descending triangle. I did not notice the previous descending triangle forming and just having it breakout to the upside. I just played where I played without doing homework and was just squeezed out. I later switched to longs, but was just too late. 

Note: The bullish flag you see was something I drew after I got squeezed. This was the second thing I should have noticed before shorting. I forget that the bars could form two different patterns at the same time. However, if I had done my homework before that this chart was bullish, I might have just saved my money and waited for a better confirmation. 

Testing Resistance

During these trades, I have noticed that I have added in my positions too fast without it letting it test the resistances. I also learned about the over/under idea mentioned here by VinnyB.

Here is an example of what I did wrong:

Added so you can track my mistakes if you wanted to yourself.

I added too confident and added to fast without allowing it to test its resistance. Sure, I did reduce risk on the way up, but I should have just killed it when it held the support. 

Note: I should have waited for a better confirmation and added in too quickly. 

Note: I have to again, remember that the bars could form two different things and that the overall picture dictates if the chart will be bullish or bearish. I did reduce risk, but I also added on the way up because I was too short bias. If it goes over and not under, then it's time to get out. 

Don't Overtrade

Take a look at all the commission that piled up on me. 

01/30/2015

02/02/2015

02/03/2015

The fees do definitely add up and if you are in a losing position, then the last picture is the result of overtrading. I definitely fucked up by trading too much and did not wisely add into stocks. The trades I should be making should look like Gene from the 02/02/2015 picture. 

Note: I need to limit my trades to at least 5 a ticker. Anything more than 5 should not be entertained and should be viewed as emotional trading.  

Don't Trade Under Pressure

I noticed myself under time constraints at times and forcing trades due to outside pressures. This has caused me to mistime buys and sells which in turn lost me money. If you do not have the time to trade, then don't. 

Trading under these conditions will lead to mistakes! 

These are some of the things I learned with my new broker SureTrader. I have already been trading for a while, but there is still so much to learn. I will share more mistakes I make as soon as I make them.