I Passed on A Breakout Today and Here’s Why

Okay so I passed on a breakout today and I want to tell you why.

Everything about it looked right.

Price broke over the level I had marked, it lined up perfectly with the 40-period moving average, and if you'd shown me that chart cold I would have said take it.

I said out loud that it was high risk instead.

About ten minutes later it dumped, and the whole thing failed.

I wasn't being clever.

There was one specific thing about that setup that made me nervous, and once I explain it you're going to see it everywhere, on every chart, on whatever timeframe you trade.

It's the difference between catching a move and paying for one that already happened.

So we were flagging on SPY, which just means price ran and then went sideways in a tight little range while everybody caught their breath, which is textbook continuation stuff.

I had my confirmation level marked. Price came up and broke through it, and the 40-period moving average was sitting right there lining up with the extension.

 

That's just the average price over the last 40 candles, and when it lines up with a level you already care about, you've got two things agreeing, which is usually enough.

And I said this out loud. It's a high risk bull, we're getting over the level, we should pump pretty fast, just be aware it's high risk.

Then a minute later: I'm afraid that we're chasing this move here.

What was bothering me

The move had already happened.

By the time price broke my level, the run I would have been buying was mostly behind us. The stock had already done the work, and what I was being offered was the last few points of something that started without me.

You know that feeling when you look at a chart and think, ugh, I missed this one, but then it breaks out and you go, oh wait, maybe I didn't?

That feeling is the warning, not the opportunity.

Because if it feels like you missed it, there's a decent chance you did, and what you're looking at is the part where everybody who got in early starts handing their position to whoever shows up late.

What happened next

We got a little push over the level, it tapped the moving average, and then it rolled straight back over into a big dump on SPY.

On the five minute, that was a pennant that just got rejected, and it was pretty gnarly. A pennant is that same tight sideways squeeze after a sharp move, the chart catching its breath before it decides.

Mark has been trading this stuff since the floor days, said it better than I did afterward. They gave us that little blow off the top to draw you in, and then they took it.

So the bull flag failed, and when a flag fails after it already broke out that's a strong signal, because everybody who bought that break is now underwater and has to get out.

How to check for this yourself

Before you take any breakout, ask one question.

Where did this move start?

If the answer is a long way below you, and the bulk of the run is already on the chart behind that breakout, you're not catching a move. You're funding somebody else's exit.

The setups worth taking are the ones where the breakout IS the move, not where the breakout is the last chapter of it.

And listen, I'm not telling you every late breakout fails, because plenty of them run. What I'm telling you is that you can see the difference before you click, and it comes down to asking whether you're early or whether you're the person somebody has been waiting for.

Today I was going to be the person somebody was waiting for, so I passed.

Rock On,

Voz

 

P.S. The question I always get after a setup like this is how you know when a late breakout is still worth taking. Honestly, sometimes you don't, and that's why watching it happen live matters more than any rule I could write down for you. You can trade with me for the next 30 days at no cost.