教学

The Breakout Failure: Trade The Sulking Edges

已更新

Hi

Here I come with another educational post. This time I will try to explain the breakout failure pattern along with the psychology and manipulation behind them.

For the sake of simplicity, I am taking examples of historical support and resistance levels. I will only explain the breakout failure pattern assuming that the breakdown pattern will be read upside down by the readers themselves.

Ok..let's begin.

THE BREAKOUT FAILURE

I hope everybody understands what is a historical support. Simply put, its a point where the price has taken support and bounced multiple times.

Now that we have a support level, some bigwig buyers will be interested in buying at that level. Generally these are FIIs and DIIs who want to put millions of Rupees into that stock at that particular level. But the problem for them is that, they do not have enough supply/sellers at that support level to meet their requisite demand. Why? because its a support level and nobody is interested in selling at support..right?

Now that's how they cope with this problem...the manipulation.

The Institutions have resources to manipulate :) hope you understand coz I dun wanna delve much into that in this article. In simple words I would just say that they have the power to push the price beyond certain levels.

Ok now that we know the basic stuff let's get on to the chart.

In the chart (Fig.I), the price bounced from the support multiple times thus forming a historical support. At point A, retail buyers were convinced that the support is valid. They also saw a bullish candlestick pattern and executed their buying orders with stoploss just below the support level. This scenario fetches a lot of supply (sell orders/stoplosses) below the support level.

The price proceeded up for a while (due to desparate retail buyers) before the manipulator steps in. Now the manipulators only job is to push the price down so that retail stoplosses get hit (point B). As soon as the support is broken (sometimes by just a few paise) the stops are hit (opening big supply door for Institutions). At this time the breakdown short sellers also step in to further fuel the supply--the supply which fills the institutional demand. As soon as the institutional buyers absorb the supply, there would be no more sellers interested in selling, the bids start pushing the price higher. At point C the pull back sellers step in, further absorbed by the institutions.

Now we have the breakout sellers and pullback sellers who have put their stops just above the historical support. Now the manipulator has another job to do--to hit a buy stop. As as soon as it happens the price shoots up. Here the traders like me watching charts whole day long, looking for such lucrative opportunities, place their limit orders just above the short sellers sulking edge--the point C.

For me in such a setup, the most important thing is searching for the C point.

At every uptick the short sellers would be forced to cover, pushing the price strongly in upward direction and ending the story.

Same is true for breakdowns.
Trust me, nothing works 100% but somethings gift us with higher probability.
I ll try to post some examples. But for that I need a better response.

I hope that with this pattern, some traders will be promoted to a smarter category.

Regards.

注释

Watching Avengers Infinity War. You ll v to wait for examples.

注释

An example of breakout failure. Sellers were ready near psychological 1000 level.

注释

And the one with breakdown failure.

注释

Just beware of the fact that its not necessary that every break should fail. Breaks in the direction of trend has the higher probability to be successful. If trend is up, look for breakdown failures and vice versa.

注释

In the above example of tatastel, the pattern failure was fueled/supported by an important s/r level on the higher timeframe chart.