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.
there is nothing fake breakout. it depends when you have took the position in the stock. my position is 3225 so for me it gave good return and exited the position.
johntradingwick
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@RetailSwingTraders, I appreciate your response. But I beg to differ. For day and swing traders, it was clearly a bull trap. You are in profit because you entered at a lower level. If someone entered at maybe let's say 3000 or 3100, and a bull trap occurs, they will obviously be in profit. But does that really mean that the bull trap didn't occur? Profit does not invalidate the occurrence of the bull trap.
It is called a trap because it catches traders off-guard and comes on the back of a strong market rally that looked likely to continue. Bull traps are characterized by a breakout from a historically high level of resistance(which is 3300 in the case of TCS) but by a bearish reversal soon after the breakout.
RetailSwingTraders
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@johntradingwick, yes, stock market is trap and it is difficult to make money. because we have understand that this is not 2020 where stocks are going up and every one buying it and was happy