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Chapter 20, Part II. Trading Breakouts. Page 6

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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    Commander in Pips: How to trade breakouts of consolidations we’ve discussed in Chapter 14, when we’ve talked about different classical patterns. Since channels, rectangles, triangles and wedges are in fact consolidations, trade them as we appointed.

    Just to remind you, the common approach to trading them is that usually market shows a bit in advance that it intends to make a break and gives us some other signs. This usually shows in some kind of candlestick patterns in combination with trend support.

    As an example let’s take a look at the same chart as on #1 but with MACD:

    Chart #5 | 15-min EUR/USD with ATR and MACD

    See – trend has turned bearish far ahead of breakout. ATR confirms that if a breakout will take place – it probably will be real. Even when the market has shown some up move right before the breakout, MACD holds trend bearish - that was excellent confirmation that breakout will be to the downside, and probably it will be true.

    Pipruit: Oh yes, I suppose I start to remember it, we’ve discussed something like that. Looks like I have to re-read chapter 14…​

    Commander in Pips: Right, then you it also will remind that the shape of the pattern could also be a clue and give you a hint about direction of breakout.

    Pipruit: What do you mean?​

    Commander in Pips: Well, for instance, descending triangles usually are broken by the market to the downside, ascending triangles – to the upside, wedges, H&S, Double tops/bottoms and broadening tops/bottoms are reversal patterns – so if you’ll see them inside of some consolidation, then they give you a clue.

    Also apply the 3-period rule and other rules that we’ve specified when speaking about support and resistance levels.
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