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
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Even in grim market situations, simple trading patterns prevail.
@psrarunisaimaran, to be honest, there was a sell off at the top looking at the size of the wick I would rather steer clear for the time being. However, a good entry level would be 170-175. Thank you for your kind words.
Ankit_Oberoi
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Hi Yash! Nice explaination and totally agree to the fact that horizontal lines are way more powerful!! I am invested in this scrip ;) I seem some good upside in this giant company.
vorayash05
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@Ankit_Oberoi, Thanks, Ankit! As you can see I am only the weekly timeframe so I intend to hold my position for several months too.
manoja12001
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Great analysis. So trend line breaks are not safe to trade?
vorayash05
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@manoja12001, Not in my opinion. You can't quite draw a trendline in real trading time. It is just a tool to see if the market are making higher lows or highs. I simply avoid these.