How do the Breakout traders get trapped? Part- II

11 thg 7, 2021

Psychology and Behind the scenes stuff:

1. At the BO, there was a massive bullish candle with a very high volume. This took out the previous resistance level.
2. The retailers saw this opportunity because the price closed above the previous resistance. Hence, they entered Longs.
3. The BO was followed by a Doji and then a Bearish candle. This indicated no Bullish follow-up.
4. The next candle was the last try to trap more longs before breaking down. This is indicated by the good volume on this candle.
5. Finally the price broke down with back-to-back bearish candles and reached the previous swing low.

Warning candles:
1. Doji + Big Bearish candle indicating that there is no follow-up on the BO
2. Relatively good volume on doji indicates significant selling pressure. Never a good sign for a breakout.
3. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis.

P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.