Hey trader,
Buying a breakout at the top of a big candle puts you in at the worst price of the move.
One normal pullback then shakes you out of a trade you read correctly.
On Tuesday, gold flashed a buy right after printing a higher high and a lower low. Chasing that candle meant paying up for a move that should give back about half first.
When price expands both ways like that, I wait for the 50% retrace before I get in.
On Tuesday, that meant waiting for a pullback to at least 4372, with my stop at 4365 and a target of 4391.
Below, I’ll show you how to spot the pattern and find the halfway entry on your own chart.
Why Buying A Breakout Costs You
A breakout candle feels like the market handing you permission to buy.
That candle usually closes near its extreme. Your entry then sits far from any level that could anchor a stop.
The pattern I watch for is called an expansion. Price makes a higher high and a lower low than the swing before it, so the range widens in both directions at once.
On Monday, the ES did exactly that when it took out highs and lows going back 30 to 40 candles.
A move like that clears out the buyers and the sellers who were leaning on the old range. Price then likes to drift back to the middle before it picks a direction.
I’ve seen it enough that I won’t chase the first breakout candle out of an expansion.
Here’s what I do instead.
How I Measure the Halfway Entry
Start with the highest high and the lowest low of the expansion. Include any early session extremes, since those belong to the range too.
The midpoint between those two prices is your halfway mark. That’s the level to focus on.
On Monday, gold’s expansion ran from 4413 down to 4360. That puts the halfway mark at 4386.50.
Halfway gives you a zone to wait in. A real level inside that zone gives you the exact price.
Tuesday’s gold setup shows how the two work together. The buy signal fired right after an expansion, and the stochastic showed the same widening swings.
I told the room I wasn’t chasing it and expected the move to give back about half.
The modified beacon level at 4372 sat inside that pullback zone, so I made it my entry. My stop went to 4365, with a target of 4391.
I never reported a fill on that order before the session ended, so I won’t claim a result on it.
What This Means For You
You can run this on your next breakout with three moves.
- Label the expansion first. When price prints a higher high and a lower low than the prior swing, stop treating the next breakout candle as your entry.
- Measure halfway and find a level near it. Set your limit at a beacon or point of control inside the pullback zone, and put your stop beyond it.
- Put a clock on the pullback. I’ll take a signal up to three candles late and treat anything past four as a warning.
Price won’t always come back for you. If it breaks the expansion’s high or low instead, expect it to repeat the size of the expansion.
That gives you a target even on the days you miss the entry.
Your Next Step
Pull up a five-minute chart of the market you trade most and find the last expansion.
Mark the high, the low, and the midpoint. Then check how price behaved when it got back to that middle.
Run that check on a handful of expansions this week before you put money behind the rule.
Inside the 10% Club, I call these entries live. You get the entry, the stop, and the target before I take the trade.
CLAIM YOUR SPOT IN THE 10% CLUB
Wait for the halfway mark, and let price come back to you rather than buying a breakout.
Blake Young
Senior Market Strategist, TheoTRADE
