Saturday, January 13, 2007

Market Profile Breakout Example

Here is a great picture and link on how to understand a breakout using market profile.

'Basic' strategy for breakout trades for tomorrow, using today's
(selected (5, 10 or 20 day)) Overlay:
-- Take a breakout long when price rises above upper limit
On the day of the breakout place a stop at the upper octant
-- Take a breakout short when price falls below lower limit
On the day of the breakout place a stop at the lower octant
-- For day trades: if not stopped out on day of entry, exit at the close
-- For swing trades on subsequent days: exit on a new bracket
keep stop at octant or move stop to last node as nodes develop

Breakout Trading on May 20, Using data of May 19 (See VG below)
The Visual Graphic of the T-bonds for May 19 showed balance on 20, 10
and 5 day Overlays. For T-bonds, we trade the 5 day Overlay: limits are
12020, upper and 11930, lower.

Price above 12020 (12021 or more) constitutes a "basic Value Based Power
Trading breakout". A basic stop for an upside breakout is at the Octant,
12018. Likewise, a downside breakout would occur at 11929 or less, with
a stop of 12000.

The Visual Graphic of May 20, below, shows a market that opened at 12016
and then moved up smartly to 12102, where it spent the rest of the day
congesting in the neighborhood of 12100. This is apparent from the
30 minute bars graphic on the upper right.


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