Thursday, April 7, 2011

Breakout tests as trend continuations

A breakout test (BT) is a pullback to -1t to +2t of your original entry. Essentially, this means that the traders are re-affirming the original trade and the price is likely to continue in the same direction. BTs are an important indicator or trend continuation. BT is one of the rare places where you can treat a doji bar as a valid signal bar.

A BT after a reversal bar is a form of 1st pullback trade and can lead to a large move. On a day that's essentially a large triangle day such as today, you can have BT on both sides as the price tries to consolidate.

BTs are a few places you can buy limit, since the stop is simply beyond the prior swing point. However, conservative traders can simply wait for the bar to form and then enter on a stop beyond the signal bar.

BTs are not limited to bars at swing points. Trend lines, ema (b31), and basically any barrier that the price breaks through can give a breakout test. 

No comments:

Post a Comment