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Hey, Traders, it’s Marina, the trader chick, and today we are going to work on the breakout trade. Did you know that the breakout trade is one of the highest probability trades out there? Are you guys taking your breakout trades? If not, no problem. I’m going to show you the simple way of understanding how to do it. And because only in those high probability breakout trades. Ready, let’s begin. OK, so I’m the trader chick from simplifying day trading.
And this is me, Marina, the trader chick. And today I want to talk about what is a breakout trade and why is it one of the highest probability trades and how do we spot it before we get into it, I just want to do a really quick intro and fun fact of who I am. I am Marina, like I said, and I am an expat living in Antigua, Guatemala. I don’t know if any of you guys have ever been here.
It’s one of the most beautiful places to live. And this is my family and I really recommend it. And the cool thing about being a trader is that we can live anywhere in the world. I’ve been an expat now for over 20 years in Central America, and it’s really one of the coolest things to do. So today I want to kind of break it down. I’m going to break down the breakout trade before we get into the whole idea of the trade itself.
We have to get the concept. We have to get the basics right. It’s just like when you get into a car before you guys actually started to drive, you had the basics down. You knew where the steering wheel was. You knew how to shift the gears. You knew where the clutch was, the accelerator, the ignition. These are the basics of driving. And market actually has the exact same basics. So if you don’t understand the basics, it’s going to be hard for us to get into the real trades.
So that’s my goal for today. We’re going to learn about the four basic strategies of the market and basically it talks to us. And that’s exactly what I want to tell you about. Just like in the car, right? The car is telling us what’s going on. Right. We know that we if we’re in first gear, we start to feel that it’s slowing down. We have to shift gears. If you guys have an automatic, we obviously go into a lower gear if it’s snowing or if it’s hard outside.
Right. These are the basics that we understand and the car tells us and the market actually talks to us the same way. So that’s what I want to talk to you guys about today so that they become automatic for us and that we could do it under any condition and spot any kind of trade, especially the breakout trade. So let’s begin before anything. We have to understand market movement, right. We all know that there are three very distinct trends.
We have the upward trend, we have the downward trend and we have the sideways trend. So the sideways trend, whatever you want to call it, indecision, the exhaustion, pattern of transition area consolidation area, the channel to market. It doesn’t matter the name. The thing is its flat, right? So when it’s flat, that’s where we start to understand where the breakout can actually happen. However, if we do not have it is designated, that is a flat area or really understand where that area is, we will be missing one hundred percent of the best trade setups.
So let’s make sure we don’t do that and let’s learn how to spot those trades. Consolidation areas, transition areas, again, whatever you want to call it. The best way to remember it is this is the trader’s worst enemy. Why is that? Because over 90 percent, if not more, of our wins during the day get lost in this area. And I’m going to explain to you in total simple terms why that is. So you understand what is a consolidating area.
It’s the chop, right? It’s a channel. It’s where the market bounces between two points over and over and over again. Right. It can take on many different looks. However you want to look at it now, why do we lose money during these areas? Mainly two reasons, or we should say one reason, we day traders. We are humans, right, and trading is a very emotional mental activity, so what do humans do the best?
Unfortunately, we tell ourselves stories. We tell ourselves a lot of bullshit stories, to be quite honest with you. Right. So what are these stories? For instance, a story is something like this. You just made a new friend. You just met somebody that you really like, and you’re not sure where, you know, they feel the same, and they invite you to one of their little mini get together, and you’re all excited about it. And they said, you know what, let me call you tomorrow to give you all the information.
The next day comes and goes, and they don’t never call, and you’re freaking out. Oh, my God. So you start to tell yourself a story. Do they like me? Maybe I said something that wasn’t right. Maybe they spoke to one of their friends who doesn’t really like me, and that’s why they are not calling me. What did I do wrong? And all of a sudden you get into this really negative point of view, right? You become really negative.
That is a story, because what happened is two days later, that person calls you and says, oh, my God, I’m so sorry. My phone fell in the bathroom. All my contacts were lost. I couldn’t figure out how to call you. I had to go to the store. Basically, the story you told yourself was a lie, right? But that is human nature. We start to go into a story and unfortunately, the majority of the stories we tell ourselves are negative, just how it is programmed.
That way, we have to deprogram ourselves. But that’s a whole other story, right? This is what happens when we are in a consolidating market. We tell ourselves stories. Let me break it down to you. There are only two types of traders out there, two types. I don’t care what your strategy is, but you’re going to either fall into one or the other. One is the trend Is your friend type of a trader, right?
What happens when a friend and your friend trader sees this happening? They’re saying, OK, the market’s been moving up the whole day. I’m going long because it’s going to break, and it’s going to continue. That’s the trend. Is your friend second kind of trader, contrarian trader. Right. What happens with a contrarian trader? They’re going to see this. Oh, my God. The market’s been going up all day. It’s got to retrace. It’s got to correct.
I’m going for a short. So what happens with both of these stories? I’ll tell you nothing, because it’s not true. The market is going to do what the market is gonna do. Right. And what is the market going to do? It’s going flat, people. It’s going flat. So what you have to do is you have to get out of your story and you have to sit and watch what the market is telling you. And it’s telling you, hey, it ain’t going anywhere right now.
So you better sit out and wait until I tell you, OK, now it happens in many ways. We could have downturn in markets, and then it consolidates. And again, just because it was going down does not mean it’s going to continue. It could transition and change direction. And we can have a mini consolidation, many areas. Right. Again, when you’re seeing these areas, you could take a step back. You could be a strong person and sit out and not do anything, is sitting out is as important as knowing when to get in and knowing when to get out.
OK, and this is how it looks now. If you don’t recognize these areas, you will be missing out on those breakouts when it does breakthrough. OK, here are these areas. So learn them, understand them. And now we’re going to figure out how to recognize them. And we, as the individual trader, as the retail trader, also have to understand how they work. OK, so what are those areas?
They are support and resistance areas, resistance areas are as important as for a Formula One driver putting on their seatbelts and their helmets. They are safety gear. If you do not have them marked off, how are you ever going to be able to respect them the way the market respects them? Correct. — Oh, OK. Oh, my dog is going a little bit crazy, so let me just give her a little. Both so she can enjoy it.—
All right, so support and resistance areas, we have to mark them. They cannot be mentally marked. They have to be marked on our charts. But before we do, let’s figure out what the resistance areas. It is literally the ceiling of the market. It is where the market is hitting over and over and over again. And the ceiling at least three or four or more times. Right. It could revisit those areas, but we have them marked off, so we know where those areas are.
OK, resistance areas, ceilings of the market. This could be a good 20, 30, even one-hour period. But look what happened at revisited that area. You need to draw it in. You need to understand where it is, what’s a support area? It’s the floor of the market is where the market hits it over and over and over again. And the floor of that market, it is a support area. OK, you need to understand is when the market is trending down or doesn’t have to trend.
It could be in a channel, but it is the bottom. It’s the floor. Here is the channeling market. OK, this is what a market looks like. We have the support area. We have a resistance area. You have to draw them, even if you do not draw them in. How were you ever going to be able to spot them? And then how are you going to go for the highest probability trade as a breakout guy right here?
Look at this, guys. This is it. All right. Now, you’re probably asking me. Well, all right, it’s already happening. So I see it overall. But how do I know when it first begins? Reversal areas and divergences. This is my absolute favorite, favorite way to spot these areas and to know when they are starting. I call them the trader’s map to shift in direction and trend. And guess what? They’re free.
You could do it in any charting platform for any instrument. So let’s get into it. What are they? Double tops, triple tops, head and shoulders. This is what it looks like. Reversal patterns. I know you guys. I’ve heard of them. Now it’s time to apply them. So here is a reversal pattern. We have a double top starting and he goes into a triple top. Now, when it is coupled with divergence, that means you can use any indicator here, the MACDs the RSI.
It doesn’t matter. What it’s about is watching the price action when it moves in one direction and recognizing when it’s changing that direction and going the opposite. It is showing a slowdown. It is showing that it is time to stay in the back because the market is loosening its strength. It’s weakening. OK, this is how we spot them. Look at that beautiful divergence, double bottom. It is the beginning of a support or resistance area. It is that beginning.
And once you spot it, you immediately put it in and you sit back and watch until the market tells you otherwise. Ready? Let’s put this all together, breaking out of an area. Now, I want to tell you how to what a breakout is in the most basic terminology that anybody at all can get it.
What is a breakout now? You imagine the scenario. You live south, you live right here, the slowest pivot. Right.
And your sister or brother calls you up, and they’re like, hey, come on over. I am making lunch. Come on over. Let’s chill out. You’ve been to their house a million times. You know exactly where they live. They live north of you. You know exactly how to go. You’ve been on that highway a gazillion times. You hop in your car, you get out of the driveway, you get on the freeway, right.
Full of energy, full of confidence. You know, you pretty much do this with your eyes closed, but all of a sudden there’s a huge construction site, huge detour. You got to go east, you got to go right. And you’re in an area that you’ve never been to. But the construction workers tell you, sorry, the road is closed. What happens during this area, during the consolidation area of the channel, the indecision area?
I don’t know about you, but this is what happens to me. I freak. Why? Usually Google Maps and Waze aren’t caught up just yet, too. I’ve never been here. What have they forget to continue with the detour signs? What if they don’t actually fix the road and I have to be stuck on these tiny little roads and after a while they’re going to forget to put the road signs back up. What if? What if, what if my mine is in overdrive and I’m uncertain and I’m freaked out
Would you ever enter any trades during that time? No. Right. Because you’re uncertain. You don’t know what’s going on. You don’t know if the work is going to continue up or down or what. Right. So that’s that channeling area and we have it marked off. Now, all of a sudden, the construction worker says, hey, come on in, the road is open. You get back on that highway that you know so well.
And what do you do? You break out, you zoom, you have that confidence renewed. And this is. The breakout trade, guys, that is it, all right, you’re back in the confidence you’ve back and renewed. That’s the breakout. You’re driving a detour, freaking out, but no worries, Breakout and you’re driving up again. So this is the setup. I personally also use a lot of my MACD for the strength to show me when it happens.
As you can see here, I’m going to test a whole other video. You’re welcome to see my videos for the MACD and how I apply them to spot the good trades all together with the strength. But that is the breakout trade. Easy peasy, right? Simplifying day trading is my thing. I am The Trader Chick. You can subscribe to my channel. You could also email me with any questions at thetraderchick@Gmail.com.
All right. Thanks, everybody.
