Breakout Trading

Hello you very wonderful and intelligent individuals that make up this forum. I hope you have had an excellent start to 2025 and that everything is going well for you.

I was kindly reviewing alot of micro cap stocks and before a large breakout, there appears to be various candlesticks that i am not familiar with. I have kindly enclosed an image to this post and these can be seen in a light blue square. They appear to be a large red line vertical with a red line through it going horizontal which makes it look like a cross symbol. Can i kindly please ask what these candlesticks mean and do they indicate a reversal please? If anyone kindly had any thoughts on this i would be forever grateful and thankful it would mean the world to me.

Thank you ever so much for any support you can give. Sending you lots of good wishes and i truly hope you have a wonderful year and a happy and amazing life. Enjoy the rest of your weekend. With my every best wishes.

Basically -
A candlestick with Open and Close near the High indicate a bullish market.
A candle with Open and Close near the Low indicate a bearish market.
A candle with Open and Close near the middle of the range between the High and the Low indicate indecision.

In all these cases, when the Open and Close are very close together, it does not matter which is higher and which is lower.

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Hello, @robertbanking, as mentioned in the previous response, those candlesticks represents indecision. Now, what does indecision mean, in the context of a Security? Indecision, is the occurrence, where the direction of an asset is directionless . Both buyers and sellers are at equilibrium, (neutral) and a negotiation is taking place between buyers and sellers, to determine the next price level. This situation occurs at key moments in a Security. Think of these candlestick patterns, telling you an “unseen” story, wherein, you must now determine the underlying meaning behind it. Situations like these occur, prior to major events, events that affects the structural balance of a Security and either propels it into higher pricing levels or lower pricing levels. Therefore, candlesticks like these are inviting you to look at the underlying circumstances, as something is happening:

  • Is the Security about to have a major news release?
  • Is there a major executive decision or change in the Security?
  • Is there any geopolitical tensions, or policies that may affect the Security?
  • Is there interest rate decisions or monetary policies to be announced that may affect the Security?

There are just a few. When looking into the underlying meaning behind the candlesticks, ask yourself, what is the service of this Security? Will the upcoming events impact this service?

The answer to these questions along with many more, from research, will add further context behind these candlesticks. I draw your attention to Richard D. Wyckoff. Read his literature, on the accumulation, manipulation and distribution cycle of a stock, and see where the candlesticks you identified falls into which category.

You are onto something, @robertbanking, keep on researching, and best of luck to you!!

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Here’s the highlighted candles without hindsight

Candles like that represent indecision. While they’re being made, they look like bull candles & bear candles, but finishing breakeven. As @TwinIslandTrader stated, I would look at what Bond yields were doing, how FOMC expectations were planning out, geopolitical events. Covid was peaking at that time and we were all glued to the Covid death charts as to if/when more stimulus was going to be given to the American public. The vaccines were about to roll out… the same time it was Trump vs Biden for president. A lot was happening to add to the volatility of that security.

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Looking back at those crazy times… here’s a real trade I took. My most profitable at the time. I saw TSLA was creating a coil or wedge pattern. Usually a precursor to a breakout (or breakdown). I was betting on more stimulus happening and a breakout would occur. Once I recognized the pattern forming, I started buying Out The Money Calls for Dec/Jan with every paycheck, averaging in.

The stock could have easily fallen just as it rose, but I was willing to gamble on Tech during an environment of 0% rate & QE/Stimulus. Using OTM Calls, I was able to accumulate a lot for cheap.

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Thank you ever so much for all your responses, you are truly all wonderful people on this forum and wonderful human beings. Thank you ever so much for your kindness and for responding, i really loved reading your responses. I truly hope you are having a lovely weekend and everything is going well for you.

@TwinIslandTrader i really appreciate your response meaning the candlesticks represent an indecision. You then state situations like these occur, prior to major events, events that affects the structural balance of a Security and either propels it into higher pricing levels or lower pricing levels. Thank you ever so much for this, it makes perfect sense, thank you ever so much for your kindness.

I am very sorry to ask and feel embarrassed and anxious to ask. When an indecision candlestick is displayed and after there is then large green candlestick bodys after the indecision candlestick could this then indicate the stock is starting an uptrend please? If you kindly had any thoughts on this i would be forever grateful and thankful it would mean the world to me.

I have found that with the On Balance Volume if this is increasing above what the volume has been over the previous few months, after this indecision candlestick an uptrend can then start. I please wondered if you kindly know any other indicators that could be helpful to use alongside these indecision candlesticks and whether for instance using support / resistance could be helpful please? If you kindly had any thoughts on this i would be forever thankful and it would be immensely appreciated.

Thank you ever so much for your kindness on this forum and support, you are truly magnificent people and my heart goes out to you all. Thank you very much @TwinIslandTrader for your kind comments, i will kindly keep researching, i have always wanted to trade breakouts but never been able to formulate a good strategy. Sending you lots of good wishes and i truly hope you continue to have a wonderful life, for you, family and friends. I hope you achieve massive success in the stock market and continue to have great health. Enjoy your Sunday. With my every best wishes to you.

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Blessed Sunday to you @robertbanking. You are most welcome :saluting_face:. It’s quite all right to ask questions. I will try my best to answer where I can, and where I cannot, I will try to learn and transpose.

In regards to the breakout after an indecision candle/s, it is a possibility that price may do one of the following:

  • a false breakout,
  • a breakout with momentous volume to the upside/downside
  • a breakout, then retest, and continue in the direction of the breakout
  • a breakout, followed by indecision.

What I am saying here, is that, not all the time a breakout above/below means that the asset will trend in that direction. But I suggest look at the probabilities of it actually trending. Base a concept off of that probability, manage your risks, and you have a solid foundation to build an edge.

I trade breakouts as well, but not on stocks. Also, I am unfamiliar with the On Balance Volume indicator and I don’t use indicators to trade, just breakouts and risk management.

Thank you,and likewise!! Many best wishes to you as well :handshake:

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Thank you ever so much for your wonderful and helpful response @TwinIslandTrader you are truly an extraordinary person and my heart goes out to you. I really appreciate the time you have taken to answer my questions you are a wonderful human being. I truly hope you have had a wonderful start to the week.

I really appreciate what you said in relation to, what i am saying here, is that, not all the time a breakout above/below means that the asset will trend in that direction. But i suggest look at the probabilities of it actually trending. Base a concept off of that probability, manage your risks, and you have a solid foundation to build an edge. Thank you very much for mentioning this, it has made perfect sense, thank you for your kindness.

I am very sorry to ask as i appreciate you may be very busy, i please have two follow-up questions if you could very kindly help me with. Can i kindly please ask for a few examples of Indexs you have traded a breakout on previously please and how you initially screen/find these Indexs that could have the probability of a breakout please? If you kindly had any thoughts on this my heart would go out to you and i would be immensely grateful for your help with this.

You have mentioned you don’t use indicators to trade, just breakouts and risk management, which is wonderful to know, i think i try to overcomplicate things, using indicators and this is then, what makes me less confident with the strategy. I kindly please wanted to ask what criteria or checklist you use for determining the probabilities of a stock/index trending please, what do you look for on a constant basis that would make you confident in trading a breakout please alongside the indecision candle/s? If you please had any thoughts on this i would be forever grateful and it would be highly appreciated.

You are the most amazing person on planet earth @TwinIslandTrader i cannot thank you enough for your support and guidance, you are a truly wonderful and terrific human being. I hand on heart hope you achieve massive success with your strategies for trading breakouts and i hope it brings you massive wealth. Sending you lots of good wishes @TwinIslandTrader and i truly hope you have a fantastic week ahead and i hope you continue to have a wonderful and happy life, full of memorable and enjoyable moments. With my every best wishes to you.

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I prefer trend-following strategies because they align well with my risk management approach and allow me to ride sustained market movements. Breakouts can be profitable but often come with higher false signals, which I find challenging to navigate consistently.

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Hello @robertbanking. Apologies for the late reply. I will share some annotated charts this weekend with you. I’ll prepare it from Friday.

I trust that you are well! Do take care and all the best to you! :saluting_face:

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Thank you ever so much for getting back to me @TwinIslandTrader you are the most amazing person on planet earth. That would be wonderful please if you kindly had some time to share some annotated charts. I hand on heart cannot thank you enough and look forward to learning from you. Sending you lots of good wishes TwinIslandTrader and i truly hope you have a wonderful and peaceful weekend. With my every best wishes to you.

Hello @TwinIslandTrader i truly hope you have had a wonderful start to the week and that you are happy and healthy. I very much hope you continue to generate massive returns for yourself in the stock market. Thank you ever so much for all your help previously you are truly an amazing, wonderful and fantastic person.

I am very sorry to follow-up on this, i feel embarrassed and anxious to ask as i appreciate you will have a busy schedule. I kindly wondered please if you had chance to create the annotated charts please? It really would mean the world to me for your support and i am so grateful and thankful for your time and support, my heart goes out to you for your kindness. I had a tear in my eye this morning, on how amazing you have been as a person @TwinIslandTrader and i cannot thank you enough for all your previous support.

You deserve all the success in the world and a truly wonderful life. Sending you lots of good wishes @TwinIslandTrader and i truly hope you have a fantastic week ahead and i hope you continue to have an amazing, happy and joyful life, for you, family and friends. With my every best wishes to you.

Breakout trading probably features best returns when you account for the time those returns were realized. Also breakouts involve momentum which make them ideal for algo trading where speed of making decision matters.