Breakouts are one of the classic patterns that make probably work. One way to identify whether what you bought is a breakout is a rapid price moment away from the level and/or volume spikes. The reasons for trading breakouts are fairly straightforward: 1. Technical Analysis is a self-fulfilling prophecy so for a pattern to work, everyone has to take the same action for the price to move. When the line is horizontal most of the time, everyone is indeed watching the same level. Diagonal trendlines are the worst thing ever invented. Never ever use a diagonal trendline. 2. Markets move from a period of non-volatility to volatility and we are essentially trading the volatility.
Trade closed: stop reached
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Clearly, it was a very aggressive entry. This is a trade-off I'm willing to live it so no problem.
Please explain why not to trade diagonal trendline? I want to know more about this. Thank you.
vorayash05
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@indrani4545, Sure. What makes the prices go up? Demand. If every retail trader doesn't have the same trendline, the prices aren't moving because there just isn't enough buying pressure. Horizontal lines are exactly the same for everyone more or less. It's that simple. Also, the trendlines drawn are always in retrospection because drawing a trendline in real-time is very ambiguous there are no clear rules. I have read several interviews from successful traders, statistical testing books that many aspects of subjective technical analysis are flat out wrong. I would send you pictures but I don't know how to attach the sources. If you really want to trade trend change or something, just add stuff that can help you clearly objectify the change of trend because price action as more "professional" traders will tell you is the best thing, it's actually not. It is a great tool to read charts but that is not enough. This is why I use Keltner channels instead of trendlines- every time the prices pierce through the Keltner channel, it signals possible demand. This is how I combine price action with indicators that are statistically tested to work.
If you would like to know more or just see proof that I am not just another idiot, go through my trade recommendations and you'll see I am not here to sell courses and actually make money trading stocks. If you have any questions feel free to connect with me.