There is perhaps nothing more frustrating than taking a position at the perfect setup be perfect setup and then watching it get beat down like a rabid dog. So in this video we're going to be talking about false breakouts and how to avoid them. A lot of this has to do with finding the right breakout. So many folks choose the wrong breakouts and this this is what keeps me up at night.

But anyways, in return for these tips, the only thing that I ask of you is that you hit that ravishing like button and also subscribe for more short sweet and simplified videos on Hats Right to stock Market. Okay so let's go ahead and start with some backstory. When I first started trading, the first advice I found was to simply buy higher highs I Now hate this advice but at the time my entry point was always upon higher highs aka a break of resistance. So I go forward and compiled a list each night and then draw trend lines to measure previous levels of resistance.

then in the morning if they broke past previous resistance I would buy them. Pretty simple strategy I Thought I was the next best thing since toasted bread and by sheer luck I found that the strategy had worked the first few times. but then as time went on I noticed I was finding more and more false breakouts where it would break past previous resistance and then just go right back down. It was the stock market keys and that's when I quickly realized that all breakouts aren't created equal I learned that there simply elevating and deprecating factors that I needed to be aware of if I was going to be able to time and figure out where the best breakout point was for me to enter and I also learned that higher highs wasn't necessarily always the best breakout to take an entry point in.

In fact, it's usually not the best breakout, but there are some situations where higher highs is a effective strategy. But anyways, the first way that I cut down on my false breakout problem was taken into consideration be context of each situation. For example, if we were looking at Capr and noticed a massive break out over our directional SMA line and resistance on this 5-day chart, we'd be ecstatic thinking now was the time to buy in based on the higher high strategy. And yes, if you had bought this news catalyst plate, you would have been able to buy in upon confirmation and ride.

The price ranks up and over the SML on. But what if this wasn't the way that you were approaching us and you ended up getting into the game a little later and you instead decided to wait and buy in upon intraday higher highs. Well, let's see what that looks like intraday. Based on the price action alone, you would be justified in taking a position upon a break of higher highs and you would have experienced some upside.

but after it failed and continued to run down, breaking our intraday directional strength. so what gives? Well, when you open you 180 day chart, you can actually see the context. You can actually see that Capr has a long history of running up massively in a short time period and then being beaten down. So what does this tell us? Well, it tells us that the run ups in the stock are inflamed banshees.

I Call these inflamed banshees because each minute they fly higher, the closer the Banshee is to burning alive and the farther it has the fall. So how do you avoid these false breakouts on these stocks? Well, well, in these situations, don't buy higher highs, you're focusing on the wrong breakout. Instead, buy into intraday points where we are trading in and holding direction over our red SMA line which is our directional strength and have a confirmation of price strength over our blue SMA line and our below fair value. This means that you are getting in at a good deal on a stock, but you're also in a period of price strength where you're more likely to go up as compared to go down.

If you focus on buying into a stock when you are at a confirmation when you are also at a good deal, then you can just simply write the momentum without jumping on the inflamed banshee at the end of its ride. There's always that risk and you want to figure out how to hinge that risk as much as possible. And unlike buying into higher highs, a price strength conformation will allow you to measure the concrete strength over the SMA line and provide you a concrete exit point at validation. And so, the moral of this first example is that with stocks that have catalyst driven massive spikes like this one, you're going to need to really micromanage your position and track all of your elevating and deprecating factors to be able to accurately assess whether or not it makes sense to buy in.

Buying into higher highs gets more and more dangerous as the Banshee flies higher. So my suggestion is to either keep track of news catalysts ahead of time and buy in upon confirmation and a good deal, or wait until the spike provides another confirmation point at a good deal with proper elevating factors lining up. And for those of you who are a little confused at what I mean by elevating factors, there are certain things that push the odds of success or less than our favor. There's elevating factors and deprecating factors.

Pretty common-sense stuff. but I do have a list of the main elevating and deprecating factors and I made a video ranking these with my stock market criteria checklist and I'll put that in the description below. Okay, so the second way to avoid false breakout: To simply do not trade stocks that don't warrant breakout positions. A lot of folks get caught up in this, but it's just so frustrating.

This one really grinds my gears and if I was in charge I would require all newborn babies to have it tattooed on the back end of their arms when we are looking at a stock like Dee We have a history of over selling and returning back to Resistance again and again. and there are two ways of looking at this. The first one is to look at it as if we're going to buy into higher highs. and in that situation we'd say damn, this is 80s.

It keeps breaking out and then failing to hold its breakout and going right back down. So using the strategy of buying into higher highs or taking advantage of the upper end of the momentum, you're going to fail. with this and a few times it would have worked. But the thing is that when you're focusing on buying higher highs with a play like this, you're basically missing me Forrest in order to take advantage of a few burning.

Crees You see, as we get closer to resistance, we are already pretty overextended long term. so while you're wasting your time waiting for a breakout with no previous history of running up afterwards, you are also squandering the opportunity at hand. The opportunity here is this pattern of breaking directional strike than providing entry points at oversold and below fair value. The big opportunity here is buying and holding until previous resistance, not buying in after resistance.

and The beautiful thing about the strategy is that it doesn't matter whether or not it breaks out or fails to break out, you can profit off these attempts to break out. and this is ever so much easier in an uptrending pattern like this one, because the stock is heading up overall so you have a lot more leeway. Okay, so the next tip is probably one of the best ways in my opinion to boost your profitability overall, as well as lower your risk of failed breakouts. And that's simply to trade quality patterns.

Quality folks. What this means is trade stocks that have a consistent history of making higher highs in quite a smooth way. If we are looking at AMD we can see that we are in a consistent up trending pattern with some healthy push backs and knowing this is the long-term trend, we look at the shorter chart and pick out entry points for swing trades And that means we look for points where we have confirmation of both directional strength over our red long term directional SMA line as well as our blue price strike short term SMA line. We love elevating factors and these are two huge elevating factors in our favor.

And I do, of course, want to emphasize the fact that you need to choose the right breakout. A lot of folks would look at this uptrend and propose a strategy that involves something like behind in each time it breaks its previous high. Again, this frustrating higher high mentality, These breakouts would simply be a point of entry for many traders, but this is a dumb strategy and it'll only reward you on perfect up friends like this one. Yes, you could get away with it when I carry pick certain plays like this, but in the long run, a higher high position? a higher high entry point.

That's the point where it's going to be overextended. That's the point where you have a lot of downward potential, and that's the point where on average you're more likely to see some depreciation. It doesn't mean that it's not going to keep going up after higher highs, it just means that you have a lot of deprecating factors, so you so you better have your risk management in hand. So for the vast majority of cases, you should be focusing on breakouts of price strength also known as confirmation.

The breakouts of higher highs means that we see more running, but it also means that we're overextended. So my suggestion to folks is to focus on buying in on a breakout of price strength and moreover, directional strength not of higher highs. Anyways, the next tip to avoid or at least minimize the damage of false breakouts is a bit more psychological than it is technical. This is something that scares a lot of folks.

This involves changing your mindset about how you feel about perfect setups and perfect breakouts. Sort of easy for us as traders to get discouraged when perfect trades trades done by the book so to speak don't work out. And this is because from a young age we were taught that one plus one always equals two and B always comes before C. But these rules make us crave certainty and when it comes to the stock market, there is no certainty and this need for certainty is going to hurt your success as a trader.

We as traders want to know that the perfect set ups when traded by the book will yield the perfect results. But the fact of the matter is that even the best traders trading the best setups will lose a certain proportion of time. So coming to the realization that this is the fact and the reality of the stall market, you can take this and focus on what you can do to improve your skill set and focus on improving your probability over the Medi trades instead of just a few. Trading is not won in one or two trades.

Trading is won in many trades, so it's up to you to do your part in order to put the probabilities as much in your favour as possible. Have a plan execute on that and let your probabilities work for you. Do not be hung up on winning a trade, but be hung up on winning over the long run. You can't win every battle, but you can definitely win the war anyways.

folks I Hope this video was helpful for you I Don't say this very often, but I really do appreciate the chance to provide some sort of value to you on these videos. As you know, I Could talk about trading all day and it means a lot to have you as both a viewer and participant in this community and also to encourage you along your trading journey. I Know that it is a very challenging one, but it's also quite exciting. And anyways, aside from that, if you have any questions, feel free to comment below or reach out to us on the Zipp Trader circle Facebook group.

We also have a trading tutorials playlist, a discord chat, and a bunch of other resources on these that create a circle Facebook group that you could use to better do better yourself as a trader. Anyways, have a great day folks and I'll see you in the next video.