Monday, October 24, 2011
After the trendline break
Regardless of how strong the trend was and how great the signal bars are, the trend terminates after a trendline break (b29-39). A trendline break that goes for several bars and several points should mean you no longer look for with trend signals.
There fore b35 is not an H2 or A2 and neither is b41. It however, is a good trade since a trendline break after a strong move is expected to re-test the prior extreme.
After a trendline break, you are in a trading range and you should only expect two legged moves that may not go to the other end of the trading range. For example, b53 gave two legs to b73; b59 gave two legs to b67; b73 gave 2 legs to b79. There is no telling how far any leg can go and b77 buy went only a point above prior swing high. This is why trades mid-TR should be avoided. They are unlikely to have many participants and their strength is suspect.
On the other hand, you should fade weak breakouts and take strong breakout pullbacks. Despite being a strong bar b52 was a weak breakout. It was on a third push up (b45,49,52) after a TL break. The oio after the breakout (b52,53,54) setup a reversal. The BP at b59 was weak (TR bars b58,59). b68 on the other hand, was a strong BP short.
In summary fade weak breakouts at ends of range and take strong BPs only after a TL break and avoid trying to find continuation trades.