Day trading is a game of probability.

There is no doubt that a trading setup with a high probability of profit is preferred, and an objective analysis of the technical setup will be of great benefit. First, your risk tolerance is limited, and you need to have a clear logic about what's going to happen.

If the trade fails, please accept the loss, continue to trade, do not affect the mood because of the loss. In most cases, determining trading probabilities means that you can measure your trading risks and rewards beforehand. I often wonder, how do I identify a trade that has a higher probability or a better chance of winning?

In fact, there are many ways to do this. First, you can thoroughly analyze your trading strategy through reverse testing or even forward testing, which helps to ensure that you remain objective. Another approach is to analyze at least two independent events that could indicate the same trading opinion.

Taking moving average crosses as an example, not all bullish and bearish moving average crosses are predicted to be successful. Because it's an intersection, there's only one event at work. So, how do you get higher profits through moving average cross trading? Simply add one more indicator and you can see a completely different market outlook.

How can I improve my trendline breakout strategy?

One of the most common problems faced by breakout trading methods is fake breakouts.

A false break occurs when the market price lures you into a false break, only to get you to enter the trade and (usually) move in the opposite direction with new momentum. Not just horizontal breaks or candle chart breaks, even trend lines, this happens all the time. The first step to reducing the chances of getting caught in a false break is to draw a trend line. Once you have drawn a trend line, you will know whether to go long or short when the price breaks through the trend line (up or down).

So how can we be more vigilant and avoid these potential fake breakthroughs?

Use hidden deviations to limit false breakthroughs

Using the divergence method is a simple but effective way to avoid false breakthroughs. By using this method, traders can only look for qualified breaks. Hidden departures (or reverse departures) can be a bit more complicated than normal departures, but it's actually quite simple to operate.

A hidden bearish divergence occurs when the price has a lower high and the oscillators (MACD or stochastic indicator or RSI) have a higher high.

Trend Trading: Stochastic Indicator & MACD Indicator Strategy

A hidden bullish divergence occurs if the price makes a higher low and the volatility indicator makes a lower low.

When used for trend lines, this setting is easy for traders to find. Therefore, when the trend line rises, we look for short positions confirmed by a trend line breakout, as well as breakout retracements confirmed by a hidden bearish divergence. When the trend line goes down, we look for the first break in price, followed by a pullback to form a higher low position. To hide bullish divergence.

In both cases, the price has a lower high and a higher low, and the stop loss can be set at the closer high or low.

What time does the entry trading start?

We already know how to verify a trendline breakout. But left out an important question, where is the entry and stop loss and profit set?

An entry can be a low formed after a trendline break (an uptrend line breaks a short position) or a high (a downtrend line breaks a long position). Stop loss points are set at lower highs (for short positions) or higher lows (for long positions).

Does it always work?

Not so, and that's the nature of the market, you don't always find this textbook pattern, but when it does, it means it's a trading setup with a high profit success rate. You can enter the trade at this position because you know that if you are closed by a stop loss, it will void the setting. In some cases, you will find that hidden divergences occur even before the trend line breaks. You can also find double tops or bottoms using the hidden deviation method.

In summary, using the concept of divergence can be a good and objective way to verify a trend line breakout. If this trend occurs, you can choose a trade with a higher probability of profit. The downside is that traders need to be patient with different tools and navigate charts in different time frames.

If you are looking for an easy trading setup that will give you higher profits, try using the trend line breakout method that hides divergence.