Video – When a Breakout Trade Fails (swimming with the sharks)

Published on: June 14, 2019

The Breakout trade is one of the most popular setups around. For that, and a number of other reasons, this also makes it an area where large players can nudge the market around. Typically that involves pushing the market so that the breakout trade sets up and then sitting on the other side of the market absorbing the trading before finally pushing people out of position. If you consider the typical intraday range – it’s typically a non-directional market at a slow time. Contracts build up and so does impatience to get into the market. This lack of large money participating plus the impatience in smaller traders means it’s relatively safe and rewarding to nudge the market around a bit.

If you’ve ever heard of a head fake – that refers to this exact thing, a breakout that then suddenly fails & sends you back into the range. There’s nothing wrong with the breakout trade – but you do need 1 essential skill to play it properly. That’s the ability to recognize when it’s failing or when it’s a head fake.

Richard from Axia Futures leads this Jigsaw price ladder trading session with a look at a breakout trade that lost momentum and how to identify what it looks like when this begins to happen. The example is an early attempt to breakout in the Bund with the potential of a continuation.

We see the first skip up occur with 600 lots trading into the high and the classic low volume area left behind on the price ladder. These are good signs, but the first bit of trouble came when the Bund easily offered straight down. The Bund gave another attempt to move higher but the offers continued this pattern of reloading and offering back down.

Contrasted to a healthy breakout, if this was going to be a good continuation move the offer might reload 2-3 times and then bid up to the next price with buyers showing intent. However, in this case the kept reloading with no initiative being shown from the buyers to carrying a continuation. This is seen perfectly when the market bid up to the high and no buyers were willing to lift the next price.

This style of analysis, along with 19 trade setups PLUS how to analyze the conditions each works best in, is available in our institutional package – brought to you from Jigsaw & Axia.