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For retail traders, one of the most common pitfalls is chasing breakouts — especially after big news or market-moving events. The temptation to jump into a stock that’s surging higher can be overwhelming, but it’s usually a mistake.
While professionals may take advantage of these moves, most retail accounts aren’t built to handle the risk and timing required to trade breakouts successfully.
Let’s use Tesla (TSLA) as an example.
During a breakout following the 2024 election, the stock moved sharply higher, coinciding with speculation about Elon Musk’s increased influence in the Trump administration. It’s easy to get caught up in the excitement, thinking, “This is my chance to ride the wave.”
But here’s the problem: Breakouts like this are often driven by speculation and short-term news — factors that don’t lend themselves to clear trading opportunities for smaller accounts.
Options in Tesla can also be quite expensive, making matters even more risky for small accounts.
Professionals with hundreds of millions in capital can afford to hold positions through speculative phases. They have the resources to scale in and manage risk over time.
Retail traders, on the other hand, need to focus on trades that offer better timing and clearer setups. For example, waiting for Tesla to retest its breakout level would provide a more structured opportunity with less risk.
The same logic applies to MicroStrategy (MSTR), one of the most-hyped stocks of 2024.
The stock saw a major move after earnings early in the year, transitioning from low interest to a sharp uptrend. While the breakout looks enticing, chasing at its peak can leave you exposed if — and when — price pulls back.
Instead, a more disciplined approach would be to wait for the stock to consolidate or pull back to a key support level before considering an entry.
Otherwise, you can get caught up in reversals like this massive red candle…
Here’s why chasing breakouts is risky for smaller accounts: The potential downside often outweighs the upside. If you jump in late, you’re likely buying at or near the peak of the move (again, see that big red candle and downtrend above after MSTR peaked).
A pullback — even a minor one — can quickly turn a promising trade into a losing position. For retail traders working with limited capital, the margin for error is simply too small.
So, how do you avoid the breakout trap?
Start by shifting your mindset. Instead of trying to capitalize on every headline or sharp move, focus on trades that align with your strategy and risk tolerance.
Ask yourself, “Am I entering at a level that makes sense, or am I just reacting to price action?” A disciplined trader knows that patience often leads to better opportunities.
The market will always have flashy breakouts that grab your attention. But the most successful traders don’t get caught up in FOMO and know when to step back to wait for the right conditions.
In trading, timing isn’t just important — it’s everything.
Avoid chasing, stick to your plan, and focus on setups that offer the best chance for success.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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The profits and performance shown are not typical, we make no future earnings claims, and you may lose money. The trades expressed are from historical data in order to demonstrate the potential of the system.
