Break Resistance Confirmed By a Candle Break

One of the most powerful, but difficult trading strategies is trading a breakout. You see a stock smacking into a point of resistance, and you know the second that it finally has that real break-through, the stock could easily pop a percent in a few minutes. And if you’re trading options, you expect a nice little implied volatility kick as well. The problem that I’m sure we are all familiar with is that if you can catch that pop, you’re probably already a good 20 cents behind. And if you’re not, well, it’s probably a fake break 😁.

Around 2 weeks ago, Lee and I added a feature that has changed the way I trade breakouts. We added the ability to place a trade based on the break of the current candle, as opposed to being limited to a break of the previous candle. This has allowed me to snuff many fake breakouts, as the stock often enough does not end up breaking the previous candle. When it does, Trade Unafraid's optimized entry and exits mean that I am never late.

Here is an example of this strategy in action, and how it helped me make solid profits today, and avoid losses caused by fake breakouts.

Below is a chart of Facebook. Based on the past 5 days of trading, I believed it had developed resistance at 297.

As you can see in the image below, FB had multiple break attempts over 297 -- none of which broke the candle high in which the break of 297 occurred. The only time that it happened was on the real breakout, a large green pop that ran to 301 before slowing down.

Net result: $766 invested, $210 profit.