Engaging in breakout trades, whether to enter immediately after the breakout or wait for a pullback before entering, both methods have their pros and cons. This is a matter of choice, not a judgment call.

I will directly clarify the advantages and disadvantages of these two entry methods, and the decision on which to choose should be based on one's trading habits and personal characteristics.

Firstly, let's discuss entering immediately after a breakout.

The advantage of entering immediately after a breakout is quite clear: the entry point is very clear and definite, allowing us to use limit orders for trading.

Breakout points typically occur below support levels or above resistance levels. There is essentially no ambiguity when entering the market; as soon as the price breaks through the breakout point, we can enter directly. At this time, we can use limit orders to trade, which is relatively easy and allows us to maintain a certain distance from the market.

This approach also ensures that we will not miss the market movement, as entering on a breakout occurs when the market is moving upward. The entry point is on the inevitable path of the market trend, so we will not miss the opportunity.

Advertisement

However, the disadvantages of entering immediately after a breakout are also apparent. When the market is highly volatile, slippage can lead to unfavorable entry points.

Entering on a breakout is done at the moment when the market penetrates a resistance or support level. Such points often come with large volumes of trades, leading to gaps in the transaction prices, which is what we commonly refer to as slippage. Therefore, entering the market immediately at the moment of a breakout often results in less-than-ideal transaction prices, with long positions being executed at higher levels and short positions at lower levels.

Additionally, setting a stop loss for a breakout entry is more challenging, and the risk-reward ratio tends to be poor.

Breakout entries are made at the high and low points of a consolidation range. According to pivot point theory, placing a stop loss at the previous high or low of the consolidation pattern results in a larger stop-loss space, leading to a poor risk-reward ratio. If the stop loss is set below the breakout point, it becomes more aggressive, with a lower success rate and greater difficulty in execution.Let's talk about pullback entries.

The advantage of a pullback entry is that it allows for a better entry price, resulting in a more favorable risk-reward ratio. A pullback entry occurs when the price forms a breakout and then retraces before re-entering the market. At this point, the entry price is more favorable, and you can directly set the stop loss at the high or low point of the pullback, which means a smaller stop loss space. Once the trend is established, the risk-reward ratio is very good, which is conducive to our execution.

Moreover, when entering during a pullback, the market is not as volatile, leading to more stable trades and fewer slippages. After a sharp breakout, as the market gradually consolidates, the opening trade price becomes more stable, with fewer slippages, and the order execution price is more guaranteed.

The disadvantage of a pullback entry is that if the market does not retrace, there will be no opportunity to enter, potentially missing out on profits. Some fast-moving markets may not retrace after a breakout but simply undergo a brief pattern consolidation before continuing the trend. In such cases, a pullback entry might miss out on some opportunities and profits, which not everyone can tolerate.

Additionally, the operation of a pullback entry is more complex. To execute a pullback entry, one must first establish the support level below and combine it with certain patterns and indicators for entry. Compared to a direct entry after a breakout, the operation is more complex and requires more attention to the market.

Let me explain how to choose the right entry point.(1) You can choose based on the size of your trading cycle.

If you are trading in a larger cycle, then the stop-loss space will be relatively large, and the profit target will also be large. When entering the market on a break, the slippage generated has a smaller impact on the overall trade. In contrast, for smaller cycles, the stop-loss space is smaller, and the profit space is also smaller, which has a greater impact on small-cycle trading.

For example, if the slippage is the same at 20 points, the profit target for a large cycle might be 1000 points, which has a limited impact, while for a small cycle, the profit target might only be 50 points, which has a significant impact.

Therefore, if you are trading in a large cycle, you can opt for entry on a break. If you are trading in a small cycle, it is better to choose entry on a pullback.

(2) You can choose both, entering in two stages, half on a break and half on a pullback.

Since these two entry methods have their own advantages and disadvantages, entering in two stages is a compromise. You can enter half of your position when the market breaks, and the other half after the market has pulled back to the desired level. This approach will be more balanced. Psychologically, it is also more acceptable. However, by doing so, the complexity of your strategy will increase, and you will need to clarify the conditions for each entry and be careful not to make mistakes.