Chapter-1
Breakout Trading Is the Most Underrated
Trading Technique
How to differentiate a genuine breakout from a
false breakout?
◆◆◆
This question was running in my mind for many years. Back then,
I was working in a software firm, and I used to attend several
workshops on trading during weekends just to ask this one question. I
was pretty sure; if I can crack this question, it will help immensely in
both positional trading and as well as intraday trading. However, I
didn’t get any satisfactory answers from most of the trainers.
One such weekend, I was attending a two-day workshop on
trading from a famous technical trader in India. I thought, this time I
will get the answer to my question. He was explaining most of the
concepts related to trading. However, I was waiting for a chance for
my inquiry. Even after one and a half days, I didn’t get an opportunity
to ask my question, and many participants surrounded him during
lunch and coffee breaks.
Time was ticking, and I just had one last hour. From my
experience, I knew trainers leave early on Sunday evening with an
excuse of catching flights. He was still explaining some concept,
assuming I might not get an opportunity to clarify my doubt over a
Q&A Session (if there was any), I gathered some courage to interrupt
his speech in the middle with my question.
I was hoping he will explain the answer using charts. To my
surprise, he switched off the projector and came forward. Then he
started telling how his big connections in Mumbai and Wall Street
trade, how they take large quantities, how they consider auspicious
days like a full moon day or Diwali and take into account the rise in
sea level to add their quantity. Finally, he concluded most of the
breakout days in any script closely associated with such good days or
a good day related to the particular script!
I was frustrated by his answer. I was angry at myself for wasting
two days of my life, and I had decided not to attend any workshop on
trading going forward.
With this state of mind, I went to a remote place inside the
Western Ghats in Karnataka (India). It had an old temple, and
somehow I felt positive vibes in the area. The next day morning, I
woke up early and went for a walk. After the hike, I went inside the
temple and meditated for some time.
When I was coming back to the guest house, I saw a mother
chicken roaming with its baby chicks. All the baby chicks were
following the mother except one. Sometimes, it was leading the
group, and sometimes it was going far away from the group,
sometimes mother chicken used to follow that baby chick along with
its other baby chicks.
Without my consciousness, I stopped my walk and started
observing their activity. Within a minute, I got the answer to my
question! It was unbelievable that I found the solution to my problem,
which was haunting me for several years. Unfortunately, I didn’t carry
my laptop with me. But I was impatient to wait there. Hence, I
checked out from the guest house and drove back to my place. It was
over 400 km drive, and I didn’t take a single break in between.
Once I reach my home, I immediately had started to check my
findings on the charts. Fortunately, my idea was correct. Except for
this first chapter, the remaining content of the book is a detailed
expansion of one single idea!
What is a Breakout?
Investopedia.com website says, “A breakout is a stock price
moving outside a defined support or resistance level with increased
volume. A breakout trader enters a long position after the stock price
breaks above resistance or enters a short position after the stock
breaks below support.”
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