Friday, September 10, 2010

A successful breakout

We are familiar with breakouts. If correct, a breakout provides large profits because it enters at the start of a trend, up or down. But, breakouts are often wrong. In fact, less than 30% of breakouts will give the desired profits. The pattern makes money because breakouts that are successful make far more money than breakouts that fail.

Let us ask ourselves: why do breakouts succeed? When prices cross resistance or support, to move further requires a huge mood swing. Quickly, traders / investors should agree that the breakout is likely to succeed. Once that happens, they jump on the bandwagon, thus pushing prices further which gets even more traders to feel that the breakout will succeed....

So, a breakout actually requires a mood shift. Now, we come back to the real world. We have a breakout from 5550 in the Nifty. If we have a mood shift meaning that traders feel that the market will go up, then we may well find that the market will go up.

What do you say?


gourv said...

Hello sir,

For last 1 year we had many breakouts but after that nifty didn't move significantly,it hardly moves for 100 points or so and then stops.Technically for a breakout to be valid it should close at least 2 days above it and in precentage terms 3%.So any break out above 5000 needs 150 points.But we never had any 150 points move after breakout in the last 1 year.But that doesnot mean we shouldnt trade breakout.Now we can put our SL @5550 and keep the long with target of 200 points(5550-5350 previous range).But if we dont move significantly and close below 5550 we should exit all longs.May be aggresive trader then can go short with SL as the High it makes.

Am I right?Please correct me where I am wrong.


rocky said...

hi all,

Well read an article in the Business line newspaper which though a seems like a known fact but still quite shocking, the article says NSE has some 30.xx lacs of members out of which 50% of the volume of NSE cash Equity segment is generated by 470 odd members(quite a ratio with one number in lacs and another in just few hundreds).So, my question is how do you estimate a genuine breakout??


cooldent said...

Can a short term trader buy the nifty at current levels? Or seeing that it has been moving up since the last 7 sessions should he wait for a dip? How much of a dip will be good entry point?

rajv malik said...

namaskar sukhani ji,

how do you yourself view the success of this breakout. do you think it will be a lasting breakout. the last i heard you on cnbc was advising buying of puts. you were even finding the sudden rise in tata steel a bit baffling. is there any perceptible change in your views after the market has crossed 5600 or you are still skeptical about this breakout ?

warm regards

DAKSHIT said...

sudarshan sir, every retail investor and specially trader quite concern about news article in times now. in which 50% volume is generated by 457 member. traderes fils that market is run by them only. breakout or breakdown or technical may not work in this market. As far as I know in HANGSENG 50%volume is handle by instituional guys more than 80%. sir please give your view. our economy is run by only those 457 guys. thats why we did not react in last two poor IIP data. even on infosys result?????sir please give one blog on that. it will heplful for us thanks sir