Indicators for Avoiding False Breakouts 🔪😭

foreign [Music] what's up everyone Ross here from Warrior trading in this episode I'm going to walk you through how to avoid false breakouts in the last five days of trading just in the last five days we have had a couple of huge momentum stocks and I've been doing well I've been averaging over 13 000 a day for these last five days I'm at 68 198.97 just in the last five days of trading almost seventy thousand dollars in one week now some of the stocks that we traded we saw some impressive range and some absolutely horrendous false breakouts bull traps and bear traps and I saw a lot of Traders do really well but I also saw a lot of Traders fall into the traps so I wanted to make this special episode and review with you the three steps that I'm taking before jumping into a trade this is especially important right now in this market where we've got a lot of volatility we've got a lot of opportunity but we have this inherent choppiness and it's been more prevalent in the last six months than maybe than I've ever seen in my trading career some of these whips and if you're watching this episode you've probably seen them where a stock you know pops up it starts to break out and maybe it looks like it's about to Halt up and then all of a sudden it whips back down now there's a couple of contributors to this and then I suppose it doesn't really matter too much to look into all of the details or speculate as to why this is happening most importantly is taking some steps to avoid getting caught in the traps so you can trade better the goal of any beginner Trader naturally is to try to find a couple of opportunities each day and so I'm going to show you a couple of the indicators that I'm using to help me focus on trading a stock where it has the most potential and then therefore avoid trading the stock in the areas where it has less potential for profit and then invariably higher likelihood of these bull traps that can catch you as a beginner Trader when you fall in it is nasty alright so let's go ahead and jump in I'm going to switch over to the screen and we can start actually diving into the charts I'm gonna go through the three steps I'm taking right now before jumping into a trade all right let's do it so one of the first things that I've done is I've added an oscillating indicator to my charts so typically when you look at my charts you wouldn't see this indicator at the bottom typically you would see the candlesticks and and then the volume right here and you wouldn't see an additional indicator but one of the things that I've kind of struggled with over the last few months with these a really nasty false breakouts is in the past I would find myself trading a stock in this area here when it's sort of pulling back and I'd be looking for that next move higher the oscillator is helpful here because it reminds me that the stock is now sort of on the back side of this move it was moving up trending up very quickly and now we're kind of reversing and so really at this point one of the biggest steps that I'm I'm trying to focus on and then I asked myself before I'm taking a trade is is this stock on the front side of the move or is it on the back side of the move and so the front side for me on this stock is everything before this candle right about here so in this area the stock is trending up and this is one that we traded uh last week and did quite well on and so you had a little uptrend here a little sideways another nice uptrend here a little more sideways more uptrend and then it just started to pull away even faster so these are the areas naturally where we had the most opportunity I mean and this is a stock that went up 100 in like an hour this was this is exactly what I want to be looking at now remember as a beginner Trader you're never going to capture the top and bottom of every move but you know when you have a stock that goes up 100 even if you only capture a fraction of that a fraction of 100 is still a really nice move if you're trading a stock that's just going sideways you know a fraction of nothing is nothing so you want to focus on stocks that are moving quickly and so for me this oscillating indicator gives me that added confirmation that this is a stock that's trending up so what you see here this kind of looks like a mountain range and I like to see that the mountain ranges are getting bigger and I like to only trade when this green line right here is above the red so basically based on the oscillator the only areas that we would really want to focus would be right in here and then right in here and so if we we bring that up to the the chart it's basically this area here and this area here right right in right in here and so if you focus on these areas right here and then in the areas where the green is no longer visible you're sitting out completely you're not even trading it and here's the problem look at this false breakout this is Case in point see this false breakout right here so if you had been using this indicator and by the way this is this is just simply macd the moving average convergence Divergence indicator it's just macd and I just colored it in this way so it's just easier to see basically you you could do different settings on this some people will use it as a histogram and the histogram works the same it's um you would only be looking at it when it's green and not when it's red but I actually leave the macd line on and then I put the signal line over it so macd just for what it's worth um it's that's what we call it macd it's that so I'll just give you a quick example so um so macd it stands for moving average convergence Divergence indicator and so when a stock is moving up quickly it's short moving averages like for example your nine moving average as you probably know will move up really quickly with the stock as it's going higher right your slower moving average is like your 20 they're a little they're not as fast to pick up and so what ends up happening is in this period right here your moving averages and so this is a measure of the relationship between two moving averages a fast one and a slow one and so what we're measuring is if they're diverging which means they're moving apart the space between them is getting bigger or they're converging which is what would be happening uh right through here they would be converging so when they're converging this is a very easy representation that the stock if it's converging and the space is getting Tighter and Tighter and Tighter then the stock clearly is coming into a range-bound area now the reality is you can you can recognize this by looking at the chart and yet so many Traders will still end up falling into traps in a way because we sort of get this tunnel vision and so one of the things that could be helpful with indicators is that they can add a little bit of a red light or green light you know it's a it's a cross check so you're looking at a setup and you're thinking this looks good but let me just cross check my other indicator now I want to be uh warning you that if you add too many indicators you can get this analysis paralysis where you've got so many indicators you've begun uh confusing yourself and it's not really possible in a very short time frame of taking a day trade to review you know 15 different indicators to see that they're all positive or that they're all confirming so I do urge caution I think it can be helpful to add one or maybe two additional indicators but you don't want to put on too many because then you can get yourself into a little bit of this analysis paralysis um and and by the way at the very beginning of the episode I talked about uh the trading over the last couple weeks that I've been doing um so I just wanted to throw this uh right down here this is the sixty eight thousand dollars I've made in the last week of trading so this is uh just in one week of trading and I want to remind you guys as always in case you didn't know that my results are not typical this is real money I trade with real money this is a retirement account that I'm trading in but you shouldn't assume that you're going to be able to do the same as me I've been doing this for a really long time all right so I just wanted to to say that before we go any further okay so on uh amtd one of the things that happened was right at the open we had this really nasty false breakout right so the stock squeezes up here from 11 up to 12 up to almost 13. it drops then all the way to 9.45 and it gets halted going down and I hate seeing Traders you know type oh my God I just got caught in the Trap and I'm red on the day because to me the the and I don't want to I I hesitate to say easy money but all you know relatively speaking trading is not easy but there are naturally going to be times where a stock is easier to trade than other times and I find right now that the easier times to trade is when the momentum is the strongest which means the stock is on the front side of the move macd is positive here you've got your fast line your signal um is a your your macd line is above the signal you've got this Divergence and when it starts to cross back over this is where we're seeing this inherent weakness and when it's negative and the stock pops up a lot of those pops are getting rejected really hard so yes you're getting a swing you are getting a pop and I suppose if you're really quick you could have gotten in and gotten out of this and made money but this is high risk and as a beginner Trader you want to be focusing on the areas where you're more likely to have the wind at your back momentum is on your side you can get in you can set your position and you can let it work and perhaps if you get in a little too high you have the benefit that you're still on the front side and there's a really good chance the first dip is gonna get bought up that's not going to be the case when you're trading it on the back side of the move so this is this is just one example and I'll go through a couple of examples during this episode now um the second indicator that I'm using to help me avoid false breakouts and getting caught in Bolt traps is to avoid trading stocks below the volume weighted average price this probably goes without saying but you know you you've got all this price action right here and I see a lot of traders who will say hey Ross you know does this look like a um you know does this look like a good setup right in here and I'm looking at this and I'm thinking no it doesn't it's below the volume weight average price it's basically at low of day and while it's good to buy on support you're buying something that is inherently shown a lot of weakness and what happens is it starts to pop up a little bit you get that topping tail and then that hard rejection and on a stock like this where the volume weighted average price um where it tests it look at this this was a test and a massive rejection so that's a false breakout we had this false breakout right here you've got another one right here the whole time your macd is negative right so your moving average convergence Divergence indicator is negative so the stock is moving is not in a this is not positioned positively for a trade and this is regardless of the float the float here could be 900 000 shares it could be 9 million it could be 90 million on this type of stock you have the technical characteristics working against you it's on the back side of the move it's clearly coming down are there going to be exceptions at times where you'll see something that you know blows your mind and just does the exact opposite of what you expected sure but my my sort of opinion on this and my preference is while I might miss a couple of Trades that surprise us if I can avoid getting caught in you know eight out of 10 false breakouts I'm gonna be in a much better place as a result and so that means focusing on trading in these areas right here so now let's look at another example um oh and then so we've got our three the three indicator or the three steps I'm taking right now before I'm I'm buying a position I'm checking the macd and I'm wanting to confirm that the oscillator is positive and that we're moving away we're diverging right that tells me this that's just a very quick Red Light Green Light the Stock's moving away this is a safer place to be trading it because sometimes you'll sit down and you'll look at it in this area where it's sort of pulling back and you're like okay maybe it's going to go back to the high and right now that's not a setup that is trustworthy there's too many false breakouts when you're trading when you're in this convergence uh type of positioning so then the second is making sure I'm focusing on trading above volume weight average price which you certainly were your above volume weight average price you know all the way until this breakout right here so that just trading above V web would not have kept you out of this false breakout that's where you needed the macdeep and then the third uh sort of check that I'm doing before taking a trade is I'm asking myself is this a stock that has a history already today of doing some nasty false breakouts or perhaps from yesterday if I recall from yesterday and so once a stock has a reputation of being untrustworthy and doing these types of false breakouts I'm much more likely to avoid it in the class that I recently taught on algo scalping and how market makers and institutional trading algorithms work we talked about the the whips that these algorithms are fueling they they provide liquidity to the market with high frequency trading and the high frequency trading algorithms but they also amplify volatility the way these um algorithms process orders that go into the market so a big marketable uh sell order for instance on a stock like this can all of a sudden trigger the algorithm to pull the bids and it can result in a dump and so when you start seeing a stock showing this type of tendency it tells me a couple things number one it tells me that you've got some high frequency trading algorithms or market makers that are abusing retail Traders on this particular stock and I've got to put like a caution flag at it that that's not trustworthy number two there's the possible risk that there's insiders or somebody selling really big chunks of stock as marketable orders because it's creating those big flushes and those big rejections and they don't care that they're getting 50 cents or a dollar of slippage on their exit because they're in from such a good price it doesn't matter so that's a red flag so if we see a stock that's shown a history of false breakouts like for the rest of the day on this one I would say it's not trustworthy so it tries to get back over the v-wap right here and you know it makes an effort but now this is our third check while your macd is coming back up into positive territory and you are back above the v-wap now this is a stock that already has that red flag caution flag on it it's had a history of false breakouts therefore it's not trustworthy and so it shouldn't have surprised you when you got this rejection right here from ten dollars straight down to 868 in one candle so you know if you bought this and you're like oh it's holding above VAP this looks like a nice clean trade I'll buy this pullback you know right here well you know you've got topping tail here so the Candlestick by itself is already showing indecision this was a bit of a topping tail and then right here basically out of nowhere you get this dollar and a half per share drop on a million three shares of volume so that again to me is someone is dumping a huge position and now anyone who bought this above the v-wap right in this area is trapped they fell into the Trap so when a stock is proving it's not trustworthy I leave it alone again here see it tries again it comes up you get that big topping tail it's still not trustworthy and I've I know so many traders who will just keep trading these stocks they will trade them all day long they'll get in they'll get out they'll get in they'll get out and listen guys I'm gonna be honest this stock was only clean right back here at this part of the move this is the only time it was clean and if you missed it you missed it wait for the next one if you're over trading this it's a stock where you've got the macd against you you've got this history of false breakouts and at this point you're below the view app okay let's look at another one qnrx all right so this is another stock from um just a couple days ago we had a epic move on it and this right here is going to show you again let's just use the macd to highlight the areas that we would want to trade it so macd is positive from here to here it goes negative and then it comes back up to positive right through here through here all right so these are the areas where we're interested and sorry we've also got it back here but this is at the very beginning of the move so it's very possible you would have missed that early move um okay so these are the areas and we can make we can pull this down a little bit um so you can see it better sorry so these are the areas right in here where we're focusing all right and we can pull this down a little bit all right so this is the gut check this is the red light green light the indicator here is saying yes this is worth looking at it's worth considering it doesn't mean blindly buy it just because your macd's positive but you can see these this nice mountain range formation the really steep move up now obviously in this section where it goes from 13 to 28 a share extremely volatile it also comes all the way back down to like 17 before you have that actual crossover where you the note the macd is goes below that this red area so it's not like you would just hold it until it goes negative that's not the strategy at all the strategy of course for those that aren't familiar is to buy micro pullbacks so if you're if you don't know about the micro pullback strategy I'll put a link right down in the description I'll pin in the comments if you want to download my microstrategy PDF you're welcome to download it I've made that available for um Traders on YouTube for a long time so check that out and that's going to walk you through the actual strategy so right now we're not talking really specifically about entries like the precise entry we're not talking about the precise type of stock at the end of this episode I'll put a a recommendation to a couple other videos that I have that go into those aspects of strategy in more detail stock selection and entries and exits right now I'm just talking about what can we do to avoid false breakouts so number one here focus on trading when the macd is moving up you've got this nice mountain range this nice acceleration the stock is moving quickly this is all the front side of the move and at this point right here when it went negative you would have been like okay is the front is the move over and here's what I would say the fact is the stock was holding up very well you've got a fairly big range here but it's holding up quite well okay so that indicates that the move is not over yet yes your your moving averages have converged because you're in consolidation but it hasn't like dropped hard in this area here this area here I thought the move might have been done I was like okay that might be it but it rallied back up right here and then as it rallied back up this right here first pullback was an opportunity now you know truth be told you would have had to take um you know be a little bit Brave to take that trade because the stock had just squeezed up pretty quickly but at this point it didn't have any strong history of false breakouts at this point for the most part it was fairly clean it breaks out here it pops up squeezes to a high of 13 it pulls back it does hold down then it rips back up again in this area this is all bullish the dips are getting bought up and the dips are coming to the moving average yeah sure it's a big red candle but it's coming right to the moving average predictable support and it's rallying back up so micro pullback entry right here you've got a micro pullback right here you've got another one right in this area here then we go into a longer period of consolidation which also ends up turning into a five minute chart I am on the one minute chart right now which for active day trading I find just to be faster and and therefore more helpful so this right here ends up marking the top okay so when the stock comes back down probably about at this candle here when you have that bigger breakdown it indicates that okay we're not rallying back up and you can see at this point you did hold consolid Foundation through this area but now you've got a real decline in volume we definitely rejected off the top we had that topping tail candle and the next day it just you know it tried a little bit but it wasn't able to reclaim those levels and at this area here while you certainly could have taken this type of trade right through here this would certainly have been higher risk on day two than trading it on day one day one is usually when we're going to see the cleanest action that's the type of area you want to focus on so amtd that was a good example qnrx that was a pretty good example envb this was another one oh apdn this is another one also uh apdn this one had a really dramatic false breakout and here was the red flag on this one so right in this area um your mountain range is here are not growing they're not getting bigger the mountain range is smaller right through here this is a smaller increase back up so you're not seeing this nice big expanding mountain range and then you come in right here and look at this Rejection it goes to seven up to a high of 7 25 735 halts down instantly flush but it had already done something very similar right here not quite as big and it also rejected really hard right here and both of these rejections pulled back well below nine moving average support I mean these came down hard so this one while it was above the view app and while the macd was positive what this one had was the history of false breakouts already before the big one and the macd wasn't as good of a profile as I would have preferred and then envb this is one that I was squeezing up the same day as qnrx and on this one again the area to focus is front side of the move so you've got this nice acceleration here you've got your mountain ranges getting bigger I will say that this one had quite a lot of range it would pop up to a high of 857 drop down to 750 came back up dropped back down so very kind of jerky price action and then it kind of pulls away but this really was sympathy momentum to the move happening on qnrx it was happening at the same time the q1 RX was going to 28. so the sympathy momentum there the the important thing if you're using if you're trading sympathy momentum and you're kind of taking that approach is that when the stock that this has sympathy to starts to roll over and is dying this one probably will as well and don't expect it to go a lot higher especially when it doesn't have any of its own real Standalone catalyst so here you have the moving average crossover or sorry the macd crossover and so we were kind of clean to keep trading it through this area but right there on that break that was game over right there when it broke and so it wouldn't have been worth trading it down here trying to buy it down here this is where it's high risk so what I would focus on if I were a beginner Trader right now his trading stocks on the front side of the move when the macd mountain range is moving higher the macd the moving averages are diverging they're moving away you're having this rapid rate of change that's classic momentum now there may be days where we don't have something that's really really strong like that and that means as a beginner Trader you're probably better off trading in a simulator on that day and waiting for the next one that's really strong you want to focus on trading stocks that are above the volume weight average price of course more bullish therefore and you want to focus on avoiding stocks that have a history already of showing false breakouts or bull traps because if they've done it once they will do it again right there's a reason that they've done it once whether it was a big seller and the market makers abusing retail Traders whatever the the real cause is the price action speaks for itself so when a stock is no longer trustworthy you gotta let it go break up and say I'm done with you I can't trust you and I'm not going back I'm waiting for the next one you don't have to take trades on every stock that's moving and you don't need to trade for eight hours a day if I'm going to be honest let's just switch back to the Whiteboard this is the reality of trading if you can make 20 cents uh sorry um if you can make 20 cents a day 20 cents a day per share right you do that with 100 shares you're up 20 bucks all right you've got 20 bucks at 20 cents if you do it with a thousand shares you've got 200 bucks now if you could do it with 5 000 shares you've got a thousand bucks all right so I want to encourage you to keep this goal at the center of what you're thinking about 20 cents a day 20 cents a day and so where can I find my 20 cents a day with the least amount of risk possible and I want you to go back and look at some of these charts it's going to be trade in the front side of the move and using these oscillating indicators like macd if you chose to use something else that's fine this is what I happen to like right now you're going to find these are the areas where the price action is the cleanest so this is where you want to trade it that's when you've got the green light to trade to be aggressive to try to find your 20 cents and when the macd has gone against is gone has crossed over the signal and it's negative leave it alone when you're on the back side of the move leave it alone wait for the next one the less is more if this episode was helpful I hope you hit the thumbs up I hope you're subscribed to the channel and I want to put a couple episodes right here that you can check out I'll put them right up here and right there we're going to talk more about strategy in those two episodes and remember down below I pinned to the comments and the description the link to download my micro pullback PDF so check out this episode on the beginner strategy my the best strategy for beginner Traders you can check out this one right down here for scalp trading all right check out those two episodes and I hope you keep learning keep studying it's a lot of fun but as always trading is risky so make sure you take it slow all right practices simulator before you put real money on the line and remember there is no guarantee that you'll find success whether you trade on your own or you'll learn from me so just take it slow and practice this all right thanks for tuning in and I'll see you for the next episode

Channel: Warrior Trading

Views: 57,519

Keywords: day trading, day trading strategies, trading strategies, how to day trade, beginner trading strategies, momentum day trading, stocks, trading, how to trade, stock trading, penny stocks, pdt rule, shares, float, volume, candles, profits, Wall St, finance, brokers, Ross Cameron, warrior trading, day trade warrior, false breakouts

Id: nH-z-089CgM

Length: 27min 43sec (1663 seconds)

Published: Tue Aug 09 2022