Friday, July 8, 2011

A 2 legged pullback after breakout is a good indication of a reversal

A trend break followed by a test of the prior extreme is a major reversal. Sometimes the break is so strong that the test is very shallow. For example, b26 broke a trend line and stopped short at the ema and went into barb wire. Often one bar breakouts fail and sell off rapidly but when it gave a 2 legged pullback (b28 and b32 found sellers) and the buyers were able to take out the prior swing high (b40 took out b28 high), a new trend was in effect (2 Higher highs and two higher lows).

So the next 2 legged pullback at b46 found lots of buyers and so did every pullback into the close.

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