johntradingwick

How to avoid Fake Breakout?

Education
NSE:TCS   TATA CONSULTANCY S
A lot of retailers may have gotten caught in this fake breakout in TCS . I provided that rough path (which I anticipated it would follow) in my original idea because I believed the conditions were not right for a breakout at the moment. The majority of the time, we cannot avoid getting trapped in fake breakouts. But in the recent case of TCS , the fakeout could have been avoided.


Underlying logic:
1. The market already gave 8% in the impulsive move and created a high. Don't you think it needed a little rest before the next leg up?

2. If you recall my lecture on market structure, you already know that after the creation of a high, we must come down to create a new higher low. The market cannot keep making new highs without creating a higher low.

3. There was a Bearish divergence. The price was moving up and up but the RSI was creating a lower high indicating that there isn't enough buying pressure. (I have already covered this in my older posts)

Warning candles: As soon as there was a breakout, there was a series of Hammers + Doji indicating that there is a problem with the follow-up. There was a significant volume on hammer & doji , which is never a good sign for a breakout. It indicates significant selling pressure. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis.

P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.


Rajat Kumar Singh,
B.Tech. (Delhi Technological University)
Community Manager (India), TradingView

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