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Getting good entries

alphacharts.substack.com

Getting good entries

Brian G
Oct 31, 2021
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Share this post

Getting good entries

alphacharts.substack.com

How do we get good entries with breakout trading? Buying a full position after a breakout isn’t always optimal, as breakouts can fail.

The 4 types of buy points

Often, a market will go through a series of technical events before making a breakout. I like scaling in if/when those events occur:

Twitter avatar for @alphacharts
Brian G @alphacharts
The best long entries: - Failed breakdown - Pullback/retest within uptrend - Tight range within uptrend - Breakout
7:52 PM ∙ Oct 9, 2021
46Likes5Retweets

Recent Example

Let’s look at an example using Bitcoin over the past 4 months. In June, it was clear that Bitcoin had formed a clear support level:

Twitter avatar for @alphacharts
Brian G @alphacharts
$BTC and $ETH, Daily. Which way? Time will tell.
Image
7:07 PM ∙ Jun 7, 2021
8Likes2Retweets

Then in late July, Bitcoin fell below that support level, before reversing higher a couple days later. This is called a failed breakdown, and it gave us our first entry at roughly $33K.

Twitter avatar for @alphacharts
Brian G @alphacharts
The false breakdown is my fav setup: gives you a nice low entry price with defined risk and potential for a big & fast move.
8:09 PM ∙ Sep 15, 2021
14Likes1Retweet

2 months later in late Sept, we got our second entry at $42K. This is what I call a pullback within an uptrend. Price hit a clear support level that served as the next stop level.

Twitter avatar for @alphacharts
Brian G @alphacharts
$BTC Weekly. Polarity.
Image
2:23 AM ∙ Sep 22, 2021
19Likes3Retweets

Finally, BTC made a breakout less than 2 weeks ago. This gave us our third entry at $62K.

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Brian G @alphacharts
$BTC - updated one month later. Breakout!
Image
3:23 PM ∙ Oct 19, 2021
9Likes1Retweet

Assuming the same dollar amount was used for each of the 3 trades, the average entry price on our BTC position becomes $43K. If this proves to be a failed breakout in BTC, we have plenty of profit cushion to exit our position.

Pros & Cons of each entry point:

The false breakdown is great in that it gives us a low entry price and the potential for a large and sudden move to the upside. However, price is still in a bigger downtrend (momentum is weak) and so the market is susceptible to rolling back down.

The breakout is great because we have momentum on our side. However, our entry price is higher.

The pullback within an uptrend is a mix of the above 2: We get decent (not amazing) price and momentum.

By buying a little at each, you diversify your entry and lower risk.

Final Notes:

Trading off charts requires a ton of patience.

First, wait for strong support & resistance levels to be hit or breached.

Second, there’s a lot of day-day noise in the markets. What looked like an event on Monday, could no longer be valid by Friday. This is why I use weekly charts and I wait for the week to finish before placing a trade. This gives added confirmation that the move is real.


Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.

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Getting good entries

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