Showing posts with label Pause bar BO BP. Show all posts
Showing posts with label Pause bar BO BP. Show all posts

Wednesday, January 18, 2012

Pause bars after breakout


In general, the best entry after a breakout (BO) is a breakout pullback (BP). Some traders enter above the breakout bar and this is dangerous since the pullback could be large, potentially stopping you out. Sometimes there is a small trend bar right (b4) after the breakout bar(b3). This bar could be of either color, but best if its a non-inside bar of the same as color as the breakout bar. You can enter on this bar with a stop on its other end.

The reasoning is that a real strong breakout of a new trend is likely to continue further up before a pullback. Therefore, this is applicable to b4 for example and not b36. Note that the breakout bar preferably has to have a strong close (shaved or 1t). Tails on the breakout bar are likely to cause pullbacks, so you are better off entering on a BP.

If there is no pause bar or if you are uncertain if the pause bar is a proper trend bar, its best to let the breakout progress and wait for the first pullback. A pullback right after the BO bar can be shallow but acceptable as long as you are entering on a strong signal bar. If the pullback is after an extended move, you need to wait for a deep pullback. In today's trend break that would result in an entry above b29 (since b23 is not a deep pullback).