After the Spike—Breakouts and Reversals

In attempting to manage a trend, changes and corrections should not be ignored. Even so, investors are constantly aware of retracements and of price behavior at or near resistance and support. When price moves through one of these, it tends to reverse and return into range. This reversal is also called a pullback. The potential for this to occur is the orderly assumption applied as long as the trend remains in effect. When a breakout succeeds, a new trading range is set. This can expand the trend into further territory, with increased speed, and for an extended period. The tendency in the market is to think of this in terms of bullish rallies; however, it also applies to bear markets on the downside.

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