Learning to catch High Probability Breakouts
- Thread starter amitrandive
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Thanks for the explanation..! 
I was going through some of his quotes and i found this.
"I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms."
Reference: http://www.businessinsider.com/the-tk-best-things-paul-tudor-jones-has-ever-said-2011-8?IR=T#i-believe-the-very-best-money-is-made-at-the-market-turns-everyone-says-you-get-killed-trying-to-pick-tops-and-bottoms-and-you-make-all-your-money-by-playing-the-trend-in-the-middle-well-for-twelve-years-i-have-been-missing-the-meat-in-the-middle-but-i-have-made-a-lot-of-money-at-tops-and-bottoms-14
I was going through some of his quotes and i found this.
"I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms."
Reference: http://www.businessinsider.com/the-tk-best-things-paul-tudor-jones-has-ever-said-2011-8?IR=T#i-believe-the-very-best-money-is-made-at-the-market-turns-everyone-says-you-get-killed-trying-to-pick-tops-and-bottoms-and-you-make-all-your-money-by-playing-the-trend-in-the-middle-well-for-twelve-years-i-have-been-missing-the-meat-in-the-middle-but-i-have-made-a-lot-of-money-at-tops-and-bottoms-14
"All that we have read about Paul Tudor Jones suggest to us that he would be or is a great fan of Wyckoff, Hurst and Gann (regarding his chartist bias). Here is why."for more http://www.safehaven.com/article/20401/paul-tudor-jones-ii-master-of-the-markets
10 best price action trading patterns
https://brookstradingcourse.com/price-action/10-best-price-action-trading-patterns/
These 10 best price action trading patterns are my favorites, and successful traders use these patterns every day to make money. Be flexible because each has many variations. If you keep your mind open to all possibilities, you will begin to seen them every day, in every market, and on every time frame.
So which is the best price action trading pattern for swing trading or for scalping? Which is the best for Forex markets? What about for day traders or commodity trading? It does not matter because any pattern can be the best, depending on the chart in front of you. Also, several might be present at the same time. For example, there can be a failed breakout above a bull channel at a measured move projection, and the breakout might have been out of a triangle. Some traders would call it a final flag reversal, others might see a major trend reversal, and some would concentrate on the failed channel breakout. The key is to understand what forces are behind the price action patterns and be ready to trade them as you see them unfold.
Contd....
PS: Let us try and understand all these one post by post.
Will be sharing all these in the upcoming posts.
https://brookstradingcourse.com/price-action/10-best-price-action-trading-patterns/
These 10 best price action trading patterns are my favorites, and successful traders use these patterns every day to make money. Be flexible because each has many variations. If you keep your mind open to all possibilities, you will begin to seen them every day, in every market, and on every time frame.
So which is the best price action trading pattern for swing trading or for scalping? Which is the best for Forex markets? What about for day traders or commodity trading? It does not matter because any pattern can be the best, depending on the chart in front of you. Also, several might be present at the same time. For example, there can be a failed breakout above a bull channel at a measured move projection, and the breakout might have been out of a triangle. Some traders would call it a final flag reversal, others might see a major trend reversal, and some would concentrate on the failed channel breakout. The key is to understand what forces are behind the price action patterns and be ready to trade them as you see them unfold.
Contd....
PS: Let us try and understand all these one post by post.
Will be sharing all these in the upcoming posts.
1) Major trend reversals
A bull trend is a series of higher lows and highs, and a bear trend is a series of lower highs and lows. Trading a major trend reversal pattern is an attempt to enter at the start of a new trend, hoping that a series of trending highs and lows will follow. Since traders are entering before the new trend is clear, the probability of even the best looking setup is usually only 40%. These traders are looking for low risk (a tight stop), but that almost always comes with low probability. The math is good for both these early entry traders and for those who wait for the strong breakout into a clear trend. The components of a major trend reversal include a
There were several major trend reversal (MTR) buy setups. Buying above bar 1 would have resulted in a small loss, and buying above bar 2 would have created a small profit or a breakeven trade. Buying above either bars 3, 4, or 5 would have resulted in a profit that was many times greater than the risk, and the wedge bottom increased the chances of a swing up. Many traders prefer higher probability trades and would have begun to buy around the close of bar 6, after the strong breakout. The odds of higher prices in the form of different measured moves at that point were at least 60%. The trade-off was that the risk was greater (the stop was below the bottom of the bull leg, like below bar 3 or 4).
GOOG had a failed breakout above the top of a bull channel and then a micro double top that was followed by a strong measured move down, well below the bottom of the channel. Bears were alerted to look to sell the next rally, betting that it would fail to go above the bull high and instead be followed by at least a 2nd leg down. They shorted below the bar 3 lower high, which was a successful lower high major trend reversal (it was also a small wedge bear flag). The market entered a broad bear channel and bears shorted each strong rally, expecting it to fail to get above the prior lower high.
A bull trend is a series of higher lows and highs, and a bear trend is a series of lower highs and lows. Trading a major trend reversal pattern is an attempt to enter at the start of a new trend, hoping that a series of trending highs and lows will follow. Since traders are entering before the new trend is clear, the probability of even the best looking setup is usually only 40%. These traders are looking for low risk (a tight stop), but that almost always comes with low probability. The math is good for both these early entry traders and for those who wait for the strong breakout into a clear trend. The components of a major trend reversal include a
- Trend
- Pullback that breaks out of channel
- Resumption of the trend
- 2nd pullback that grows into opposite trend
There were several major trend reversal (MTR) buy setups. Buying above bar 1 would have resulted in a small loss, and buying above bar 2 would have created a small profit or a breakeven trade. Buying above either bars 3, 4, or 5 would have resulted in a profit that was many times greater than the risk, and the wedge bottom increased the chances of a swing up. Many traders prefer higher probability trades and would have begun to buy around the close of bar 6, after the strong breakout. The odds of higher prices in the form of different measured moves at that point were at least 60%. The trade-off was that the risk was greater (the stop was below the bottom of the bull leg, like below bar 3 or 4).
GOOG had a failed breakout above the top of a bull channel and then a micro double top that was followed by a strong measured move down, well below the bottom of the channel. Bears were alerted to look to sell the next rally, betting that it would fail to go above the bull high and instead be followed by at least a 2nd leg down. They shorted below the bar 3 lower high, which was a successful lower high major trend reversal (it was also a small wedge bear flag). The market entered a broad bear channel and bears shorted each strong rally, expecting it to fail to get above the prior lower high.
Contd...
2)Final flags
The components of a final flag are
A final flag is a trend reversal pattern that begins as a continuation pattern. Traders expect the continuation to fail and are ready to take a trade in the opposite direction. Like all trend reversals, the probability of a swing is usually only about 40%. My general goal is 10 bars 2 legs (TBTL), which means a swing that has at least Ten Bars and Two Legs, and it also means a reward that is at least twice as large as the risk (my minimum criterion for a successful swing). Sixty percent of the trades result in small wins and losses that usually balance each other out. Traders who want a higher probability usually will wait for the reversal to have a strong breakout in the new direction. At that point, the probability of a swing trade is often 60% or more, but the stop is far away. That increase in risk is the trade-off. There always has to be something in the trade for the institution taking the other side of your trade. If you get great probability, you pay for it with reduced reward relative to risk.
2)Final flags
The components of a final flag are
- Trend
- Pullback that is usually mostly horizontal. It can be as brief as a single bar
- Usually almost to a magnet (resistance in a bull, support in a bear)
- Usually other signs of a possible reversal (in a bull, examples include building selling pressure near the top of a channel)
A final flag is a trend reversal pattern that begins as a continuation pattern. Traders expect the continuation to fail and are ready to take a trade in the opposite direction. Like all trend reversals, the probability of a swing is usually only about 40%. My general goal is 10 bars 2 legs (TBTL), which means a swing that has at least Ten Bars and Two Legs, and it also means a reward that is at least twice as large as the risk (my minimum criterion for a successful swing). Sixty percent of the trades result in small wins and losses that usually balance each other out. Traders who want a higher probability usually will wait for the reversal to have a strong breakout in the new direction. At that point, the probability of a swing trade is often 60% or more, but the stop is far away. That increase in risk is the trade-off. There always has to be something in the trade for the institution taking the other side of your trade. If you get great probability, you pay for it with reduced reward relative to risk.
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