A Message from author Dan O'Brien Hi there. As the head educator and a mentor here at Trading Advantage I am excited to be a part of one of the largest schools for traders in the world. Located at the Chicago Board of Trade, Trading Advanstage's school is focused on literally honing the skills of amateur traders seeking to be amongst the ranks of professionals. The biggest difference I find between amateur and professional traders is discipline. To master discipline you must begin with a core of rule-based trading techniques that shape a non-emotional trading plan. Today I am pleased to share with you one of those rule-based trading techniques I teach here at Trading Advantage The Breakout Box Technique. Dan O'Brien PS Check out an exciting offer to join our trading room at the bottom of this guide. Dan O Brien Has had a long, experienced career as a trader, a broker and an educator. He has a tremendous track record calling trading signals in the E-Mini S&P 500. Dan has developed all the tools with his over 20 years' experience in the business - top-notch technical acumen, an indepth understanding of market fundamentals, a disciplined approach to trading and a patient style of teaching.
Breakout Box Entry There's no secret that when it comes to trading equities, the trend is your friend. While your expectations may be that the stock's trend should continue for weeks or months, even professional investors can be wary of entering a market that has moved significantly in one direction. However, stocks in a strong trending market will occasionally pause and move sideways. This doesn't mean the trend is over, but instead the stock may be temporarily stopped in a congestion zone. For stock investors looking for a place to buy an up trending market or sell a down trending market, the Breakout Box Entry can be a powerful technique! Using a daily bar chart, the technique will show you where to enter the market to take advantage of potential trend continuation. For stocks in a bullish trend, a sideways move can be advantageous because it allows you to enter the market and potentially capitalize on a breakout move to the upside. Conversely, stocks in a bear market may pause for a short time and then continue to move lower. The entry for the Breakout Box Technique can be seen on a simple daily bar chart and requires only one simple calculation. You don't need any other complex indicators or complex algebraic formulas to determine the entry price. Plus, this technique can be used for any publicly traded stock! There are two ways to use the Breakout Box Technique: Breakout Box Higher: When the market is in a long term up trend and pauses before a potential rally extension Breakout Box Lower: When the market is in a long term down trend and pauses before a potential move lower For this example and for newer and less experienced traders, we teach the Breakout Box Higher for stocks in a long term upward trend. While the Breakout Box Lower can be a powerful trading tool, selling stock short often involves different margin requirements and the adherence to additional regulations by FINRA. ( http://www.finra.org/investors/smartinvesting/choosinginvestments/stocks/ ) Here are the rules for the Breakout Box Higher technique: The Stock must be in a defined long term upward trend. While defining the long term trend is not an exact science, you should look at the stock in the context of its movement over a period of weeks and months. The stock should have been consistently making higher highs and your expectation should be that this type of upward price action will continue.
The stock will have an inside day, meaning the price range for that trading day will be entirely within the range of the previous trading session. For example, if a stock on Day 1 has a high of $100 and low of $90 and on Day 2 has a high of $99 and a low of $95, Day 2 will be considered an inside day. If Day 2 has a high or low that was the exact same price as Day 1, it is NOT an inside day. Within two trading sessions of the inside day (Day 3 or Day 4) if the market trades 1% higher than the high of the inside day, one should look to buy the stock. Goldman Sachs (GS) Breakout Box Higher Past performance is not necessarily indicative of future results. See full disclosure below. Breakout Box Higher Examples GS stock breaks out of the sideways movement and begins the upward trend in the middle of December, 2011. The white ellipse on the left shows the inside day on Jan 30th 2012. A buy signal is triggered if GS trades 1% above the high of the inside day. The high of GS was taken out by 1% on the very next day with further range extension. The ellipse on the right shows another inside day on March 9th 2012. The high (plus 1%) of GS was taken out on the 2nd day after the inside day, with further range extension.
FAQs about using the Breakout Box Technique Q: How many shares of a specific stock should I trade when using the Breakout Box technique? A: That is entirely up to you depending on your risk tolerance and your account size. The trading methods we teach instruct that you should never risk more than 2% of your total account size on any single trade Q: How can I try to limit the risk when using the Breakout Box Technique to enter a stock trade? A: Our methods teach that you should always place a protective stop when trading any type of stock. The amount of the stop should be a dollar amount you determine depending on your account size, your risk tolerance, the price of the stock and the number of shares you are trading. We also teach that you should move your stop higher as the stock prices moves in your favor to lock in potential profits. In conclusion... The Breakout Box Technique is a way to implement a technical strategy to instill discipline in your trading. If you are interested in learning more then the offer below could be the best trade you make today I would like to extend to you a free lesson in our Beyond Buy & Hold Signal Classroom. Take a look at the details below and sign up for this limited time offer.
Learn from professional Trading educators Learn our most powerful signals indicators and techniques Watch our Real-Time signal calls *Past performance is not necessarily indicative of future results. Dan O'Brien and Trading Advantage would like to offer you the opportunity to take part in a free one-on-one Beyond Buy and Hold Signal Classroom Lesson. This preview will be offered at no charge to the first 20 individuals that contact us via phone or e-mail. Your FREE Preview and Lesson will include: Beyond Buy and Hold Signal Classroom Spend time watching our live charts and custom indicators in real market conditions. Insider Knowledge See the current stocks our educators are watching from their revolving list of equities that meet the signal criteria. Trading Advantage Techniques Get access to free proprietary techniques and instruction Swing Trading Looking for an alternative to buy and hold type investing? We will teach you important technical indicators. This is a no pressure lesson and preview. At Trading Advantage we believe that you should be able to try before you buy. You are in no way required to purchase any products or service from us, but if you like what you see...we are happy to review full mentorship programs and pricing. Scheduling will be on a first come first served basis. YOU MUST CURRENTLY TRADE OR HAVE A STRONG INTEREST IN TRADING EQUITIES
TRADING RISKS The risk of loss in trading securities can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should be aware of the following points: (1) You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the securities market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. (2) Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market reaches a daily price fluctuation limit ("limit move"). (3) Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will not necessarily limit your losses to the intended amounts, since market conditions on the exchange where the order is placed may make it impossible to execute such orders. (4) All securities positions involve risk, and a "spread" position may not be less risky than an outright "long" or "short" position. (5) The high degree of leverage (gearing) that may be obtainable in securities trading because of margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains. (6) You should consult your broker concerning the nature of the protections available to safeguard funds or property deposited for your account. ALL OF THE POINTS NOTED ABOVE APPLY TO ALL SECURITIES TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN SECURITIES, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS: (7) Foreign securities transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally "linked" to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign securities transactions may not be provided the same protections as funds received to margin securities transactions on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply to your particular transaction. (8) Finally, you should be aware that the price of any foreign securities and, therefore, the potential profit and loss resulting therefrom, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign securities are liquidated. THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE SECURITIES MARKETS. HYPOTHETICAL PERFORMANCE RESULTS WHERE DESIGNATED AS "HYPOTHETICAL PERFORMANCE RESULTS," THE RESULTS SHOWN ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. UNLIKE THE RESULTS
SHOWN IN AN ACTUAL PERFORMANCE RECORD, HYPOTHETICAL PERFORMANCE RESULTS DO NOT REPRESENT ACTUAL TRADING. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT OR TRADE WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT GENERALLY INVOLVE FINANCIAL RISK AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS THAT CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.