Why Most Breakouts Fail—and How to Trade the Ones That Don’t
Breakouts are one of the most popular setups in trading—and also one of the most misunderstood.
Chasing every new high might seem like a good idea in theory, but most breakouts fail or chop before ever running. Why? Because the market punishes impulsive entries. The real edge lies in selective breakout trading—finding moments when the setup has clear momentum, context, and confirmation.
Here is how I filter the high-confidence breakouts from the noise:
1. Proximity to Key Levels (Previous Day High/Low)
I do not trade breakouts randomly. I want price tight against a clean level, ideally the previous day’s high (for longs) or low (for shorts). These levels often act like magnets—but only when the move into them is strong and deliberate.
🧠 Rule of thumb: If the stock is flagging right under the previous high with volume drying up—pay attention. That is the setup.
2. Momentum Score (Relative Strength, VWAP, ORB, etc.)
I use a scoring system that factors in:
Relative strength vs QQQ/SPY
Volume profile near the breakout
Opening range breakout alignment
Clean chart with room to run
Price above VWAP and key MAs
The higher the score, the stronger the setup. If the score is low—even if the chart looks decent—I stay away.
📈 Want to see it in action? I post my daily watchlist with momentum scores every Monday in my newsletter.
3. Whole Move, Not Just the Trigger
Too many traders lock in too early. If a breakout is real, it should trend cleanly and give you room for scale or patience. I like to trim partial profits early—but leave a runner with a logical stop.
Key things I look for:
Strength into the close
No major resistance overhead
Market (QQQ/SPY) supporting the trend
Recap: Your Breakout Checklist
✅ Near key level
✅ High momentum score
✅ Clean chart + strength into breakout
✅ Volume + market alignment
✅ Defined risk and upside
If most of those boxes are not checked, it is a no trade for me.
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