Breakouts and breakdowns attract great excitement but require precise timing to turn a profit. Market professionals know that these hot spots attract dumb money. This encourages them to initiate frequent whipsaws after a price surge, just to shake out weak hands. This contrary activity ensures that the trading majority enter positions just as a market reverses. Successful traders rarely run with the emotional crowd and never on high-risk momentum plays.

Effective momentum trading requires a thorough analysis of the intended execution level before price strikes it. Consider a position within congestion near the breakout or breakdown price. This reduces risk by allowing a fast exit if the market does not move as expected. Your watch lists and chart studies will pinpoint many setups on the verge of major trend moves. There's no need to wait until price starts to jump before getting into the trade.

The actual breakout or breakdown signals a setup, not a trade entry. Wait for the market to come back to you rather than chasing it up or down. Allow the crowd to take the first bite while you measure reward:risk and look for a promising opportunity. Move on to another stock if it doesn't come. Post-breakout momentum may require trading tactics that are usually avoided. For example, a pre-open entry could be the best choice for a very hot (or cold) stock even if you avoid this type of strategy at other times.

You could join the momentum club, get filled way above (or below) your comfort level and still walk away with a profit. But this practice will eventually cause your downfall. Breakouts and breakdowns consistently lack easy escape routes. And this fast-paced environment can do severe damage even when you apply defensive risk management techniques. Some volatile markets trigger heavy losses but still maintain all the characteristics of a great trade. That's a formula for disaster.

Consistent trading performance depends on price pivot behavior against known S/R barriers. But fast markets often lack simple price floors or ceilings. Flat percentage or dollar stop losses will manage some danger in these conditions. But whenever possible, enter momentum trades close to the level that proves the setup was wrong if price violates it. Also realize that the markets offer tremendous opportunities that don't rely on strong momentum.