Did you know that around 90% of standard breakouts fail? That’s a devastating statistic (that we can’t give you an official government study on, but trust us, it’s ugly) and yet people are lured into the trap time after time. Do a Google search and you’ll even find plenty of ‘InFlu3nc3rs’ and websites promoting something trashy like “The Ultimate INSANE Crypto Breakout Strategy – How to Get Rich in 1 Click or Less” – RIP.
Today though we’re going to go 2x bigger, 2x better and 2x smarter as we hunt down
a rare and exotic trading animal that most people don’t even know exists, and yet it provides extremely high probability trading setups and profits that would make Bill Gates blush.
You can watch the shorter video guide here but we also recommend reading the blog below for all the details!
Introducing the ‘Double Breakout’…
Breakouts vs Double Breakouts
When price spends a considerable amount of time in a small range and then explodes out of nowhere it’s called a price based breakout. There are other types of breakouts too (volume, indicators etc) but for today we’ll focus on price based breakouts.
So let’s take an example of MANA.
MANA price was hovering in a tiny 15% range between 3rd October and 27th October. In the same period, the price action trend was green or light green across all major timeframes (to learn about price action trends, check out our price action scanner).
Essentially, MANA was in an uptrend but those sneaky market makers, whales who control the markets mercilessly, were able to disguise this and keep price going sideways in a range for almost 1 month.
On October 28th and 29th price exploded out of that zone. We can consider this as a classic horizontal breakout strategy. Price moving in a tight range and then a huge expansion. Good times, but remember 90% of the time these fail! You can even see in the chart above that there were multiple fakeouts during the range.
Once the classic breakout happens there are many ways we can enter the trade but here is our favorite play.
The Double Breakout Theory
Instead of playing a simple breakout as soon as price explodes, we wait for more confirmation. Essentially we don’t buy instantly assuming the price is breaking but we wait for price to first stabilize in a new range and find some kind of a hurdle or a resistance where price stops for some hours. Remember, you want to be the pilot fish of traders hoovering up the highest probability setups and avoiding the possible slaughter zones whenever possible.
Now this new area, where price is not able to move much for hours, becomes our Double Break Point. If price breaks above that zone, we have a solid chance of a strong momentum to continue and we can get into a nice double breakout trade that can print some serious money.
Our ‘higher risk futures’ signal algorithm also caught a 100% move by getting in after spotting an early, higher risk hurdle forming. But that’s not following the official double breakout recipe which we’ll come onto next.
The Double Breakout Recipe
Here’s what you need to find in order to whip up a batch of double bubble breakout bread:
- Minimum 2 weeks in a range of no more than 20%
- First breakout must be 3x the size of the range
- Use hourly time frame to find the first hurdle and confirm double breakout
- Make your entry, market buy is acceptable
We need a minimum of 2 weeks tightly ranging price action. Price shouldn’t move much more than 10-15% (max 20%) on a candle close to close basis. If it’s a bigger range it’s not so interesting. You can ignore those Intra day wicks and check only close to close prices to calculate the range.
The breakout must be At least 3x bigger than the previous range. Which means if the range was 15% the breakout candle must be 45%.
After that, wait for the price to find strong resistance in the one hour timeframe. If price can actually break that resistance, we will get price continuation. If not, the breakout turns into a fakeout and price drops like a rock.
Here is an interesting statistic from our previous findings. More than 90% of the breakouts fail and turn into fakeouts. Only 5-10% of them actually continue and move onto the double breakout stage.
Once you filter out the fakeouts, you can now focus on those which are actually showing strong momentum and are willing to continue their moves higher. This is how you become a long term profitable trader.
Bitcoin as an Example of Breakout Failure
Bitcoin you absolute son of a b*tch, what a heartbreaker!
During March 2022 Bitcoin continued to range between $35,000-$45,000 before breaking out on March 27th.
Here’s our recent BTCUSDT chart with the added breakout notes.
Key notes:
- Roughly a 25% range (doesn’t fit our criteria)
- The breakout move was only around 8% (doesn’t fit our criteria)
- The first hurdle was never broken
- Multiple ‘Swing Failure Patterns’ (SFP’s)
- Obvious dying trend and short opportunity / exit market opportunity
Case closed, typical breakouts suck.
Thankfully the alt market popped off during March and we crushed it by profiting from crypto themes that our trade team identified as well as the alt breakouts.
Triple Breakouts?
MANA is an interesting chart because we can argue for 2 different ‘double breakout’ areas. The first one we’ve covered and it fits all the criteria but you could argue that it didn’t spend enough time consolidating underneath its hurdle. The second one we’ll go ahead and call the ‘triple breakout’ and this one formed a local double top hurdle and longer consolidation.
After the original breakout, the price trend was showing considerable strength but stopped around $1.5 and couldn’t go higher for more than 20 hours. Price tried to bang and break a few times but the $1.5 area acted as a strong resistance. This is exactly what we want to find as our typical double break point.
After almost 21 hours consolidation price finally broke $1.5 and moved above toward the $1.60 / $1.70 zone. This is when we can confirm a double breakout and enter a trade almost at market price.
Price then jumped almost 200% after the entry within a day. This is where you can make bank by going really big and trailing the profits instead of closing the trade on smaller predefined targets.
Remember the best money is always made if you follow strong trends and stay in the trend until the trend is over vs closing the trade at smaller profits. In the near future we will talk about how to trail a strong trend and maximize profits instead of closing too soon.
We hope you enjoyed the double breakout strategy! If you liked this, check out our OBV reversal strategy guide.
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