After you miss a big breakout, do you still want to stay in the trade? If you want, then you can use a second chance breakout strategy. The strategy can help you to get a better result than your trading in the original breakout.
The definition
A breakout point happens when the price is in a range, it can be in a triangle, head and shoulders, or another chart pattern. If the breakout does not fail right away, the price will continue to go to the breakout direction.
That reflects the price has a clear direction. But, usually, after the price breaks out, it will get back and retest the old breakout point, come close to it. You can make the second entry during that period.
Trade in the second chance breakout
Different chart entry provides different opportunities. The second change provides a buying opportunity if the price breaks above the chart pattern. On the other hand, the second chance provides a shorting opportunity if the price breaks below the chart pattern.
Remember to stay alert whenever the price gets to the area of the old breakout point. You can take the trade back if the pullback has slowed down and the price starts to move in the original breakout direction.
To measure if the price is getting into the original breakout direction, you can’t just use your feeling and assumption. You have to use a more rule-based approached, like using an engulfing candlestick pattern.
That pattern will give signals if the pullback has ended.
If the original breakout was heading south, then wait for a pullback into the original breakout point. After the price starts to drop once again, you can enter short.
It will be helpful if you place a stop loss for a couple of cents/pips/ticks above the pullback high. That will keep your risks small.
Conversely, if the breakout was originally up, then wait for a pullback lower. Once the price climbs up, you can enter long. Putting a stop loss a view cents/pips/ticks below the pullback low can also be helpful.
Remember, the target of your trade is based on the original breakout price and the chart pattern.
Also read: Trailing Stop for Day Trading
