Just as a TL indicates favorable locations for entry, TCL typically indicates favorable location for exit. This is because price typically moves in channels and traders enter near one end of the channel and exit on the other.
When the channel is steep and narrow, the market is typically trending and trading is feasible only in one direction.
When the channel is wide and not very steep, it becomes feasible to trade in both directions.
Today's trades show two setups where exits are made at TL and TCL.
Trade #2 was a short which reacted at the TL and forced an early exit.
Trade #3 was a long which poked the TCL and was a favorable exit. A TCL violation and a large bar are both signs to exit since a potential extended pullback is likely to follow. The sidebar image shows an exit order placed at the TCL.
Any shorts at b22 should look to exit near the test of the TL (near b27).
When a TL cannot hold the price, you may see a breakout well beyond the TL or may react very weakly. Such an event is a trend break and you should no longer trade in the direction of the trend. Continuation trades are typically such breakouts beyond the nacent counter trend in a pullback (b7,10).
Can you please explain more detail about your last sentence on last paragraph: "Continuation trades are typically such breakouts beyond the nacent counter trend in a pullback (b7,10).", not sure what it really means. thanks.
ReplyDeleteI guess what he was eluding to was continuation of earlier bull trend ( B1-7) as counter trend was nascent (b10-15) and bear trend line going through B7-10 and then "you may see a breakout well beyond the TL or may react very weakly. Such an event is a trend break and you should no longer trade in the direction of the trend".
ReplyDeleteHope I explained it correctly