Most of those following Technical Analysis, trade on breakouts. The system-based traders or Algo-trading in popular parlance, lean more towards breakout trading in some form or fashion.

I am not a proponent of breakout trading, as this usually leads to a poor trade location and an invariable compromise on the choice of stop-loss.

The case of Sun Pharmaceuticals comes to my mind straight away. In the Super-Six game show hosted in CNBC TV-18, two of three participants recommended a buy on Sun Pharma today. This is a classic case of breakout trading and the stock evinced people’s attention owing to the sharp rally yesterday.

Regular visitors to this site may recall the buy call posted on December 30, at a price of Rs.495, basis futures price. The objective, as a trader, should be to participate in such spikes and avoid chasing price after a move has happened.

Not for a moment am I saying that buying now would not yield profits. But, as an astute trader, you must fine tune your approach to be more proactive rather than being reactive, after a big move happens.

Well, this is my approach to trading. And there is no right or wrong trading method. It’s a question of style and individual preference.  Any method that delivers consistent returns, with a logical risk-control mechanism is good enough.