Today s Tech Tip: Special Report

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1 Today s Tech Tip: Special Report Dennis W. Wilborn, Sr. ActiveTrendTrading.com dww@activetrendtrading.com Breakouts or Bounces both Good, but which is Best?

2 Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don t trade with money you can t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this training. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All Materials presented are for training purposes only. Traders should paper trade any new method prior to risk of personal capital. Material is Copyright of Active Trend Trading

3 Fact or Fiction? Breakout or Rebound Entries Breakout Entries are Less Risky than Bounce Entries (alternative entries)! or The few extra percentage points of gain aren t worth the risk! Which system offers the best performance from the prospective of: 1. Win/Loss Percentage 2. Risk/Reward 3. Objective Entry Our study provides some insights that may be surprising! All studies used either the SPY ETF or IBD quality growth Stocks

4 Breakout Entries 1. Win/Loss Ratio = 2/3 according to an IBD reference which is 66.66% 2. Risk/Reward = 7%-8% 3. Objective Entry = 0.10 above pattern high 4. Breakout to new highs NO Overhead Resistance This proven trading system is excellent and has withstood the test of time! But is it less risky and better?

5 Bounce Entries 1. Win/Loss Ratio = historically 60-70% 2. Risk/Reward = 3%-5% (Results -3.46% over 7 years) 3. Objective Entry = bounce off of a support level 4. Overhead Resistance yes, but often 10-40% away Seems that a Trend Trading System based on Bounce Entries is similar and at least equally attractive as a Breakout system. It also has a profitable history as identified in the work of Edwards & Magee pre-1950 in their classic book Technical Analysis of Stock Trends But is knowing how to use Bounce Entries worth it?

6 Alternative Entry 1 st Stock on the IBD 50 Start of the Year Averages per Trade : 79 Trades Profit/Loss : 4.0 Average Loss: % Average Profit: %

Example: BITA Breakout Entry : 45.45 1. BITA setting up in a Cup & Handle C&H Entry = 45.45 2.

7 Example: BITA Breakout Entry : BITA setting up in a Cup & Handle C&H Entry = Alternative: 8 day EMA bounce Entry = (.25 above moving average) Bounce Entry : Potential run to the all time high = 23% from bounce entry.

Example: BITA what Happened Next? Breakout Entry : 45.45 Price action continued to fall, and would have stopped out at 40.75 for a gain of 7.3%, but a second chance presented itself: 1.

8 Example: BITA what Happened Next? Breakout Entry : Price action continued to fall, and would have stopped out at for a gain of 7.3%, but a second chance presented itself: 1. 2 nd Bounce Entry : Breakout Entry : nd Bounce Entry : Potential run to breakout = 9.8% from bounce entry. Current Profit as of Bounce Entry = 11.28% Breakout Entry = 1.36% Note: Even with a 7-8% drop from the Breakout Entry, the Bounce Entry would still be profitable.

Example: AMBA TSLA shaping the right side of a cup after a correction: Breakout Entry : 35.48 1. Bounce Entry : 26.70 2. Breakout Entry : 35.48 Potential run to breakout = 32.

9 Example: AMBA TSLA shaping the right side of a cup after a correction: Breakout Entry : Bounce Entry : Breakout Entry : Potential run to breakout = 32.8% from bounce entry. Current Profit as of Bounce Entry : Bounce Entry = 16.4% Breakout Entry = 0 %

Example: TSLA Breakout Entry : 265.10 TSLA shaping the right side of a cup after a correction: 1. Bounce Entry : 210.00 2. Breakout Entry : 265.10 Potential run to breakout = 26.

10 Example: TSLA Breakout Entry : TSLA shaping the right side of a cup after a correction: 1. Bounce Entry : Breakout Entry : Potential run to breakout = 26.2% from bounce entry. Current Profit as of Bounce Entry : /16/14 Bounce Entry = 12.2% Breakout Entry = 0 %

11 Breakout or Rebound Entries Fact or Fiction? Breakout Entries are Less Risky than Bounce Entries (alternative entries)! or The few extra percentage points of gain aren t worth the risk! Which offers the best entry from the prospective of: 1. Win/Loss Ratio : Equivalent 2. Risk/Reward : Edge to Bounce Entries 3. Objective Entry : Equivalent 4. Worth the Potential Gain? Conclusion: Both Systems are time tested and proven profitable systems. Knowing how to Trend Trade may open additional opportunities for profitable trades while waiting for breakouts that may or may not actually happen. One might want to approach the decision of which to trade not from an either-or perspective but from a view point of knowing both.

12 Active Trend Trader Every Wednesday at 6:30 p.m. Pacific Mid-Week Market Sanity Check Training Webinar Join Live or by Recording for Premium Subscribers For this webinar: or call me for details at PH: Special Offer: Get our Free Newsletter at:

13 Good Day Traders Trade Wisely & Profitably! PH: Get our Free Newsletter at:

14 Alternative Entry Data 10 Years Trading SPY Long Averages per Trade : 167 Trades Profit/Loss : 2.76 Average Loss: - 1% Average Profit: %

15 Good Day Traders Trade Wisely & Profitably!

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Strategy when the first trigger is Missed

Second Chance Entries Active Trend Trading: Dennis W. Wilborn Strategy when the first trigger is Missed Observe things how they are; See things how they can be! Disclaimer U.S. Government Required Disclaimer