Breakouts
are popular among traders.
It makes
sense right?
When price finally "breaks" out of that support or resistance level,
one would expect price to keep moving in the same direction of the break. There
must have been enough momentum building up in order for price to have broken
out of the level, right?
It's time
to hop aboard that train. It's all smooth sailing now. All you have to do is
just wait for it...
Yes, wait
for it...
Wait for
it... Just a few more moments... To see price inch one direction... Then
suddenly move miles in the opposite direction!
Huh?!?
What the heck?! What happened to "the bread and butter and the end of
world hunger" strategy?
End of
story: You are left eating ketchup packets and crackers like Tom Hanks in The
Terminal.
One thing
you should remember to note about support and resistance levels is that they
are areas in which a predictable price response can be expected.
Support
levels are areas where buying pressure is just enough to overcome selling
pressure and halt or reverse a downtrend.
A strong support
level is more likely to hold up even if price breaks the support level and it
provides traders a good buying opportunity.
Resistance levels are just like support levels but work in the opposite way. They tend to halt or even reverse uptrends.
Resistance
levels are areas in which selling pressure is just enough to overcome buying
pressure and force price back down.
Strong
resistance levels are more like to hold up even if price breaks the resistance
level and it provides traders a good selling opportunity.
In the
next section, we will dive deeper into fakeouts and discuss why we should trade
them and how to profit off them.
It's not
enough learning about breakout strategies because there will be times that
breakouts fail. We have to know what to do in case of fake outs.
This is
part of your Jedi forex training. To be a Jedi master, you must be able to
master fakeouts.
