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Posted on August 13, 2019 12:30 pm
Identifying Breakout Failure using price Action:: Most traders are focussed only on Entry technique and are totally avoiding Exit. If you want to know its the Right Exit which makes a difference to the trading account.Many a times you will be in profit only to let the trade hit SL to cost as you didnt know how to exit at the right time, or there are cases where you book for minimal profits but market continues to make a Profitable move in your direction without you in the Trade. An Exit Defines a trader, its not the entry.
A Breakout is a strong move in a single direction. There are some times when all the conditions for a Breakout is good, yet the setup fails to continue in the direction of the breakout. The breakout could be because of any pattern like Head and shoulder or channel break or could be based on news also. But the Validity of the Breakout can be measured only Via Price Action. Price Action goes into the depth of the market structure and Order flow to understand the moves behind it.
In the Earlier article on Smart money Trading, posted I have written about the Collective FII Orders which helps in generating momentum in the direction of breakout. Same Way the Absence of Instituion Buying ( FII / DII) can be found using Price Action, Means you can identify the lag of momentum and manage your trades accordingly rather waiting like a sitting Duck and let your Stop loss hit. Here i will explain a basic price Action tactic.
A strategy is different from a Tactic. Strategy is the whole trade plan while tactic is the Trade Management Adjustment you do during the Live Markets.This is where Price Action knowledge makes a difference.
Lets discuss the Example now:
A Bar which breaks is called the breakout bar and the bar which we enter the trade is called Entry Bar. Now after the breakout most traders enter on the Pull back. If this Entry bar is getting rejected on the opposite direction of the Trend then we know the momentum is on the opposite side. The Conditions are give below in detail.
1) First thing is to note the Absence of follow thru candle. We had 2 green bar after entry and both the bars had significant tails.
2) If you draw a horizontal line in the entry bar and if you see when candles comes to that level and you see tails , that means bulls are exiting @ cost. You can see the image below
3) If price candle stays in the same area for more than 20 bar you can be sure now the bullish momentum has dried up.
4) The final nail on the coffin is the Decent red candle which formed, where you exit longs and can go short as there are no buyers coming at higher levels.
. I discuss the ART OF EXIT in my One to one price action course where we learn and trade Live in the market together. Join my one to one price Action course and Trade LIVE with me.
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You can click the below link and Read the Article Titled Smart Money - Momentum Trades
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Technical trader is born out of passion. Passion to learn, Trade and share about Technical analysis of the Stock Markets. We all know context is the important aspect of technical analysis. The Sustenance of a big move or a breakout of a particular stock depends on the context in which the breakout is happening. As a Traders coach we teach you how to develop context and trade the stock market. Especially the Nifty and the Bank Nifty.