Chapter 2
Signs of Strength in a Breakout
The minimum criterion for a breakout to be successful is that a trader could enter on the breakout and make at least a scalper's profit. The strongest breakouts will result in strong trends that can last for dozens of bars. There are early signs that increase the likelihood that a breakout will be strong enough to run to one or more measured move targets. For example, the more of the following characteristics that a bull breakout has, the more likely the breakout will be strong:
- The breakout bar has a large bull trend body and small tails or no tails. The larger the bar, the more likely the breakout will succeed.
- If the volume is 10 to 20 times the average volume of recent bars, the chance of follow-through buying and a possible measured move increases.
- The spike goes very far, lasts several bars, and breaks several resistance levels like the moving average, prior swing highs, and trend lines, and each by many ticks.
- As the first bar of the breakout bar is forming, it spends most of its time near its high and the pullbacks are small (less than a quarter of the height of the growing bar).
- There is a sense of urgency. You feel like you have to buy but you want a pullback, yet it never comes.
- The next two or three bars also have bull bodies that are at least the average size of the recent bull and bear bodies. Even if the bodies are relatively small and the tails are prominent, if the follow-through bar (the bar after the initial breakout ...
