The Concept of Breakouts
Sometimes in my post I use the word breakout. Let me clarify what meaning I put in this term.
-> breakouts, bullish breakouts - is the process of the successful crossing of resistance line. Price struggles above resistance (or zone of weakness) and does not move back.
-> breakdowns, or bearish breakdowns - is the process of the successful crossing of support line. Price struggles below support line (or zone of strength) and does not move back.
-> fake breakouts, or traps for bulls - is the process of false crossing of resistance line. Price attracts traders in longs, because they think the advance will continue. Unfortunately for them, soon price moves back.
-> fake breakdowns, or traps for bears - is the process of false crossing of support line. Price attracts traders in longs, because they think the advcane will continue. Unfortunately for them, soon price moves back.
Let’s go to an example.
In the morning I’ve posted this picture in Telegram:
Here is the original big picture
My goal was to turn your attention to following idea:
After period of dullness (flatty sideways movements), traders and trading bots become sensitive to breakouts as they desire to open trade at the very beginning of the planned trend.
Now turn to cluster chart. Red clusters - executed SELL orders, green clusters - executed BUY orders. Below the clusters - delta indicator, it shows the difference between BUYs and SELLs
- The balancing wedge, or the zone of dulling flat. We got resistance line above range, and support line below the range. The profile forms the shape of a gaussian bell. Which way the market will move from it? Here is the clue comes…
- Trap for bears started to form here. You see effort of sellers (red clusters) to breakdown the support.
- Price quickly reversed. Green clusters point on buying. Trap formed. It increases chances on genuine bullish from initial balance.
- here is mentioned bullish breakout (effort of buyers to overcome resistance).
Setup worked fine. And it works fine often.
Hope, this post was helpful to understand the concept of breakouts.
Thanks for following