Failed-breakout shorts with a half-width exit

When a breakout must hold or fail

A breakout-system is a testable procedure that treats a move through a prior extreme as an event that must either hold or fail, then binds that outcome to explicit entry, exit, and abstention rules over one holding period.

In the archive workflow, a failed-breakout is a move that clears a prior high or low and then retreats back through that extreme, often through the low of the first high in an advance, instead of continuing. A completed continuation-breakout was defined as one that clears the prior high and then never trades back below that high.

The reversal test and its clocks

In an advance, the documented reversal test requires a pierce of a prior high, a failure to follow through, and an immediate drop back below that prior high. The inverse sequence applies after a breakdown.

A rule-based-entry fires only when that stated condition is met. The same pattern was given different clocks by swing length. A 3-to-5-day swing was described as usually failing back through the prior extreme within one or two sessions. An intermediate swing was described as often doing so within 7 to 10 sessions after the new extreme.

Five breakouts, three failures

The semiconductor-index case counted five breakouts from mid-July to mid-December and labeled three of them failed because price later traded below the low of the prior high. Each of the three failed breakouts produced a rule-based sell signal. None of those signals marked a durable trend reversal. The later pullbacks also failed to print significant lower lows against the larger rally.

The half-width-exit

The exit rule of thumb set the planned close-or-protect window at half the trading-session span between the two extremes that formed the failed-breakout test.

Pullback-trading here is the short-horizon play that harvests the retreat after a failed-breakout and then exits or stands aside when that pre-set clock expires, including when the retreat is taken against a larger unchanged trend.

Three timed shorts

The August test used highs on August 17 and August 30, 10 trading sessions apart. The short trigger was 441.15 on September 5 at the low of the first high. The fifth-session mark fell on September 7, with a close of 435.58.

The September to October test spanned 20 sessions between September 15 and October 13 and triggered short at 462.38. By October 27, the tenth session after the later high, the close was 452.28, after earlier lower closes near the fifth session.

The November to December test ran 10 sessions from November 22 to December 7. It triggered short at 486.12 when price crossed the low of the first high and recorded a close of 467.01 on the fourth session inside the five-session half-width window.

A trade around a longer long

The timed failed-breakout short was also framed as a way to trade around a longer-horizon long initiated after the July low, rather than as a standalone assertion that the advance had ended. An around-the-position-trade is a brief countertrend or profit-protecting play taken without abandoning a longer-horizon stance in the same market.