Problems of trading breakouts

vorayash05 Updated   
Everyone who follows me knows I keep things simple. Trading a rectangular box breakout is my area of speciality. Today, I am here to present a few more nuances that are associated with trading breakouts.

Interesting hint I:
When you are looking to trade breakouts, you have a long bias. A failed breakdown is equally powerful evidence for a powerful move to the upside. From an investor's point of view, these regions are excellent places to add. In this case, you can see the markets break the lower range briefly but it bounces and tests the high of the range.

Interesting hint II:
The markets touched the high, indicating there is pressure to break through the range, however, there is not enough firepower. But just this testing of the upper range indicates bullish buildup. The nail on the coffin is when it failed to break through the upper range, the markets DID NOT re-test the lower range, indicating even stronger signs of "accumulation". This is higher low I.

The clean break and subsequent failure put in another higher low. We are now gathering even stronger evidence for a future breakout.
To sum up our evidence: Failed to breakdown, trying to break out, higher lows. This should serve as enough evidence.

Final thoughts:

  • Problem of range:
    Markets finally broke through but instead of re-testing the range, it made a higher low just below the range. This is why it is ideal to wait for the market to break through the upper range once again.

  • Why you should not enter at the trendline:
    The trendline drawn here is the gift of hindsight. Markets could have easily broken below the line. ALWAYS enter when the horizontal range breaks.
Trade closed: target reached:
Even in grim market situations, simple trading patterns prevail.

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