False breakouts and stop loss placement

[Mistagear]

SQ
Nice reply

The best thing any discretionary technical trader can do for their trading is learn how to read the right hand edge of a chart.

I was hoping in this exercise more would have a go --- some have and some good comments have come back.

To be able to look into a consolidation area and get on the right side of the inevitable breakout or to be able to read a move and know with a good degree of confidence that you should stay or leave a move is not only profitable but invaluable in all markets.

Tech,

Would really appreciate a critique of my analysis in my post #23 on this thread, from a VSA point of view.
Dont hold back on criticism, I dont have an ego with this and you can assist in my Wyckoff education.

Thnaks in advance,
Regards, M

 

[tech/a]

Howdy,

I would normally like to see a little more background to assess where in the cycle this particular formation resides, however my read of the information supplied,
The largest volume spike shows high demand met with supply which succeeded in pushing price below the initial upthrust.
A second drive higher through a sustained push (elevated vol levels)shows another occurrence of supply being the greater force and weakening the ability of bulls to drive higher.
From that point onwards (second highest blue volume ) volume spikes resulted in decline in price a sign that demand is weakening.
Next feature is the red volume spike where supply forced price back down to the horizontal support line, so supply now exists in numbers down to the support, a continuing weakening of demand.
Declining volume in the several bounce attempts shows demand almost exhausted, culminating in several extreme low volume days where demand appears almost non existent.
Supply returns having been unable to fill at the higher levels and price breaks down through support.
The second chart with the added bounce shows the attempted rally but given the backdrop of continued supply at lower and lower levels prior, my guess is trend continuation due to volume not supporting price, with a stop above the last no demand bar.

PS, unable to supply a visual overlay to mark tech's chart, apologies.

Mistagear

Given the information you have this is a fair attempt.

To attempt to show how I read a chart Ill put up the following for you to consider.
Remember this is a FUTS Chart

We need to look at support resistance areas shown with X
and price reaction when X is exceeded. Here Stops will be triggered BOTH buy and Sell stops.
So at the point where the lows are taken out sell stops belt along and price falls (At XX)but immediately price reverses with strong buying. This sets the scene for a great stop position.

Someone pointed out that price seemed to be ranging and I can only agree.
How can we know that price will breakout of the range up or down?

Take note of the blue highs and when the high was taken out volume would indicate that buy stops were triggered to cover shorts but supply was pretty average and price dropped due to lack of demand rather than a swamping of selling.

Notice the very low volume bar straight after xx very little volume and if there was supply then you would have seen a test toward the low--it never comes.

So as it comes to test the first resistance we look at that bars volume---its up but not massively so not many stops here--the next bar is all important so lets have a look.

How does that differ from the low at support?
So we would be long at a stop below the Low reversal and watching to see how this moves forward.

DO WE STAY IN OR LEAVE and WHY?

Bottom chart is the first reference chart

 

[tech/a]

Im currently trading the FTSE.

The chart is VERY similar.
You can see quite clearly where I went long (Well I hope you can) and I'm currently assessing the bars as they come up.
Im looking to see if this move will be sustained.
Any hints?

 

[tech/a]

A few bars here have influenced my trade what do you think I have done and why?

HINT
The VERY LOW VOLUME BARS

 

[Mistagear]

A few bars here have influenced my trade what do you think I have done and why?View attachment 44368

HINT
The VERY LOW VOLUME BARS

Tech, Thank you, appreciated.

I noticed the high vol fail attempt (first blue bar at 1854pm) similar to the upthrust 2009pm where supply again exceeded demand,
2010pm slightly above av vol and no advance ( i would be out long at that close)
2015 extreme low vol suggesting mkt has no desire to push higher through the evident supply. Volume increasing and price now declining 2017pm
I'm short the break of 2013pm low with a stop above the 2017pm high.

Cheers, M

 

[pavilion103]

A few bars here have influenced my trade what do you think I have done and why?View attachment 44368

HINT
The VERY LOW VOLUME BARS

The blue wide spread bar on high volume warns us that supply may be overcoming demand.

There is no immediate increase in volume as price looks to fall, however.

Price doens't seems to have the buying demand as it tries to rally. The last bar is interesting at price falls on high volume.

I would wait and see if price is able to penetrate the lows of 20:00 and the highs of around 19:30. It will also be interesting to see if prices hold above the bar just before 20:15, forming a higher bottom. If it fails to penetrate this I would go long.

How does this sound?

 

[Mistagear]

We need to look at support resistance areas shown with X
and price reaction when X is exceeded. Here Stops will be triggered BOTH buy and Sell stops.


Take note of the blue highs and when the high was taken out volume would indicate that buy stops were triggered to cover shorts but supply was pretty average and price dropped due to lack of demand rather than a swamping of selling.

Notice the very low volume bar straight after xx very little volume and if there was supply then you would have seen a test toward the low--it never comes.


Very insightful, I'm a little slow so needed time to digest the significance. You have added an element to the read which I had overlooked.
Again, Much appreciated.

Regards, M

PS, noticed I had incorrect minute in my reply last night, am guessing you had less reason to work out the trade than I did anyhow.

 

[pavilion103]

Just having a read through this thread again.
Are we able to see the outcome of this one or is it too difficult to dig up after all this time?

I'd love some more examples of false breaks if anyone has time.

 

[pavilion103]

http://www.scribd.com/doc/51653097/Richard-Wyckoff-false-breakouts

I found this Wyckoff article interesting. "Buying Springs and Selling Upthrusts"

It describes three different types of springs and upthrusts.