; Breakout or head fake: The million-dollar question
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Breakout or head fake: The million-dollar question


Trading price consolidation breakouts is one of the most popular methods of technical trading. When a market makes an initial move from a current area of value, or supply-demand equilibrium, it is tempting to jump on-board with the goal of realizing a significant price move. When the breakout occurs from a relatively lengthy period of price consolidation or through a key support/resistance level, then the breakout trade becomes even more compelling. In this article, the author analyzes two techniques for trading a breakout, measure the expected value of these breakout trade entry options and attempt to show how to tell whether a breakout is the real thing or a head fake. This discussion is relevant to any time-frame trading while giving special emphasis to day-trading the E-mini stock index futures. Finding corroborating evidence to trade setups using the kind of market internal data represented by cumulative ticks is one of the attractions of trading the electronic stock index futures market.

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