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Chapter 20, Part II. Trading Breakouts. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Reversal Breakout

    As you can see from the name – this type of breakout is opposite to the previous one. Here the market shows a break in the opposite direction to the previous trend that was happening before consolidation. Still, the initial move of both breakouts looks similar and you do not know the direction. A reversal breakout starts as a continuation one – initial trend and that take a pause in the way of consolidation. But further development is different. If market participants decide that the previous trend is exhausted then you’ll see a breakout in the opposite direction:

    Chart #2 | 15-min EUR/USD example of reversal breakout and ATR (21)

    Here you can see two examples of reversal breakout. During the first breakout, ATR has confirmed its truth by moving below 10. Although right after the breakout, the market has tried to return back, price action was choppy and didn’t lead to significant growth of ATR – still, this breakout was real. The same as with second one -ATR gives excellent chance to enter, since its bottoms coincide with tops of price and it shows growth even before the breakout itself has happened.

    Pipruit: Well, the second consolidation reminds me H&S pattern…​

    Commander in Pips: That’s right. This is one of the qualities of reversals – they do not happen just occasionally. Reversal is an important change in market sentiment. That’s why usually it accompanied by other signs… Or had you forgotten that?

    Pipruit: No, no, Sir – how could you think that? (Doesn’t he think that I’ve really forgotten that and just wants to have me cleaning the mess hall for next two more weeks, ha…)​
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