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EDUCATIONAL ARTICLE AT CTCR Online
LOCATION: INDEX >> GUIDE >> BREAKOUTS

Article: Breakouts (Dec 20, 1999)

by Courtney Smith

I recently received a letter from an editor from another futures magazine. She asked me about trading breakouts. What are the disadvantages and advantages? What do I use as breakouts from.

For breakouts, I simply use the previous tops and bottoms. The more important the top or bottom, the more important I view the breakout. For example, I think it is more important to break out of the top on the weekly chart than on the daily chart. Breaking both is even better.

In addition, I prefer to see a breakout over multiple tops than a single top. For example, I find it far more significant if the market breaks through a point where the market has stalled out several times at generally the same price.

I see two significant advantages for using breakouts:

1. You have, by definition, put yourself in the direction of the trend. Never never forget that the trend is your friend.

2. You nearly always start the trade with profits. The momentum required to create the breakout should immediately carry through and create a profit.

I see really only one disadvantage and that is that stops tend to be wider than some other methods.

The bottom line is that I have used breakouts for years and I make my living as a professional money manager.

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