One solution is to combine the best of strong, wide-range candlestick breakouts with cups, average true range (ATR) expansions, and gap continuations. Similarly, relying too heavily on complex lagging indicators like moving average convergence/divergence (MACD) crossovers, relative strength index (RSI), or stochastics can generate false positive entry signals and lead to overtrading weak signals. Trading breakouts based on simple price action or candlestick patterns alone runs the risk of buying near a pivot or exhaustion area. Traders may often enter a position based on a simple breakout above new highs, which subsequently consolidates or pulls back, causing stop losses. Seeing a simple breakout may convince you to place a trade, but how do you know if a breakout is really a breakout? Here’s one way you can jump into a trade and not get caught off-guard.ĭeveloping a consistent approach to identifying and trading breakouts that continue in an uptrend after a trade has been placed is a common challenge faced by active traders.
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February 2023
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