#### YungTraderFromMontana

##### Well-known member

One of the most valuable things you can find as a trader is a area that you know the price of the stock respects; An area where a break below or above has a higher chance then normal of creating a trending move. This key factor gives you the perfect opportunity to skyrocket your risk/reward ratio into a trade. As we see with fractal energy, most of the time stocks movements are extremely random and undecipherable. If you can find a catalyst that makes these moves less random and more trending you can exploit it with proper order strategies. On any given day if you place a stop loss 2 percent below the current price and a take profits at 8 percent above price there is an extremely low chance that your take profits gets hit because of the usual erratic movement of prices. If you do the same thing but trade a breakout such as a breakout to ath or a 200sma breakout your chances go up drastically because price becomes more trendy, there is a higher chance the result of the next candle is the same as the one before it. Of course every breakout will not pan out, but if you enter soon after an area respected by price is broken, you can set a tight stop slightly below the resistance and set a take profits much higher. Because of this you can be wrong 2/3 times and still make lots of money over time.

The key to this strategy is making sure that you choose resistances that the stock truly respects, not places it respects some of the time. On stocks I would only consider resistance levels where price has been squeezed for the last 10+ bars or a ma like 200sma or possibly 50sma. If you get good at seeing when a certain level is important where the chance of getting faked out is low. You have a much statistically higher chance of having price trend your way. Fortunately it is not hard to find many of these levels, It does not take an expert.

For anyone looking for examples of heavily respected levels I'll give you a few.

Recent examples of respected area breakouts could be ODFL at around 151.6 or TEAM at around 159.

If you're looking for a good old examples look at /gc from November of 2005 to September of 2011. Look at how many ath breakouts took place where you could have risked under 2% to make 10-30%. I counted 11 times with only 8 failed breakouts. That's a 5-15 time win/risk ratio with a positive win rate.