Why I do not like breakouts (even if they are great)
As you can see on this chart there were a couple of great breakouts, that went straight in the right direction.
We also know that trying to catch tops & bottoms is a noob trap, with all the really ungifted new traders that are 95% certain to fail & quit obssessed with catching bottoms (go check the Bitcoin bull community they have a new bottom every 3 months).
So why don't I like breakouts that much? Here is my list of reasons:
1- Even after a couple of years, I prefer to stick to 1 group of strategies and really perfect them, become a sniper, rather than chase opportunities all the time and risk going insane (meaning overtrading).
That's definitely happening, a way or another.
2- The majority of us that do not work at citadel etc, are competing against traders with a big information and speed edge.
Not only are there directly connected to the exchange and can execute faster than lightning while your order goes throught the internet,
but they also have access to alot of the order flow (for forex banks legally simply just have it, and for stocks you got brokers selling their retail clients order flow in exchange for "free" commissions. Not sure about CME futures, might be the only ones "safe").
Your competition will KNOW FOR A FACT there is a breakout long before you. You might be able to set an order with your broker to buy a breakout but it's going to get executed like a turtle far after hft firms and other people using unfair advantages.
When you enter on a bottom if it break below you are out and don't have to worry, but in this case, winners have this tendency to go your way very quickly and you have to react fast. And of course your orders have to be set in advance no other way no one can be fast enough.
With a rounded bottom accumulation type, you have plenty of time...
Feels like a race, with a big disadvantage.
3- Which brings us to step 3. You will get scammed all the time.
Currency markets are curious, they love to go test levels before continuing in a trend.
Unless you want to have very wide stops and a bad reward to risk, the market will stop you out over and over and over and over and over before going in your direction.
I can just look at any chart and see it all over. Rather than whine about what a scam this is, why not simply take the opposite side? If the price breaks, then you place an order very far away in case it pumps like this... As close as free money we can make it without straight up profiting of a bug with a broker.
4- If you buy bottoms with the price pumping your way you are likely to experience POSITIVE slippage, with breakouts (in particular with cotadel front running you) you are likely to experience NEGATIVE slippage.
5- You will never get the whole meat of the move (but if you go for pullbacks and bottoms, you might)
Not a very important point because in practice you're not drowning in profits from giant winners with buying bottoms, but nonetheless...
6- I think it puts you in the wrong mindset, you can easilly find yourself chasing the market over and over, the strategy is literally buying into FOMO as fast as possible. Whereas if you wait for a pullback, for weeks, unless you lose patience and do something dumb, you are not going to be chasing anything but accepting what the market is going to give you.
So to sum up the main reasons for me are:
- I don't like the concept of buying into FOMO as fast as possible
- I don't want massive slippage
- I don't want to get scammed over and over with the price going against me in a minute, and my way the next
We also know that trying to catch tops & bottoms is a noob trap, with all the really ungifted new traders that are 95% certain to fail & quit obssessed with catching bottoms (go check the Bitcoin bull community they have a new bottom every 3 months).
So why don't I like breakouts that much? Here is my list of reasons:
1- Even after a couple of years, I prefer to stick to 1 group of strategies and really perfect them, become a sniper, rather than chase opportunities all the time and risk going insane (meaning overtrading).
That's definitely happening, a way or another.
2- The majority of us that do not work at citadel etc, are competing against traders with a big information and speed edge.
Not only are there directly connected to the exchange and can execute faster than lightning while your order goes throught the internet,
but they also have access to alot of the order flow (for forex banks legally simply just have it, and for stocks you got brokers selling their retail clients order flow in exchange for "free" commissions. Not sure about CME futures, might be the only ones "safe").
Your competition will KNOW FOR A FACT there is a breakout long before you. You might be able to set an order with your broker to buy a breakout but it's going to get executed like a turtle far after hft firms and other people using unfair advantages.
When you enter on a bottom if it break below you are out and don't have to worry, but in this case, winners have this tendency to go your way very quickly and you have to react fast. And of course your orders have to be set in advance no other way no one can be fast enough.
With a rounded bottom accumulation type, you have plenty of time...
Feels like a race, with a big disadvantage.
3- Which brings us to step 3. You will get scammed all the time.
Currency markets are curious, they love to go test levels before continuing in a trend.
Unless you want to have very wide stops and a bad reward to risk, the market will stop you out over and over and over and over and over before going in your direction.
I can just look at any chart and see it all over. Rather than whine about what a scam this is, why not simply take the opposite side? If the price breaks, then you place an order very far away in case it pumps like this... As close as free money we can make it without straight up profiting of a bug with a broker.
4- If you buy bottoms with the price pumping your way you are likely to experience POSITIVE slippage, with breakouts (in particular with cotadel front running you) you are likely to experience NEGATIVE slippage.
5- You will never get the whole meat of the move (but if you go for pullbacks and bottoms, you might)
Not a very important point because in practice you're not drowning in profits from giant winners with buying bottoms, but nonetheless...
6- I think it puts you in the wrong mindset, you can easilly find yourself chasing the market over and over, the strategy is literally buying into FOMO as fast as possible. Whereas if you wait for a pullback, for weeks, unless you lose patience and do something dumb, you are not going to be chasing anything but accepting what the market is going to give you.
So to sum up the main reasons for me are:
- I don't like the concept of buying into FOMO as fast as possible
- I don't want massive slippage
- I don't want to get scammed over and over with the price going against me in a minute, and my way the next
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