Chapter 4

Breakout Entries in Existing Strong Trends

When a trend is strong and there is a pullback, every breakout beyond a prior extreme is a valid with-trend entry. The breakout usually has strong volume, a large breakout bar (a strong trend bar), and follow-through over the next several bars. Smart money is clearly entering on the breakout. However, that is rarely the best way to trade a breakout, and price action traders almost always find an earlier price action entry like a high 1 or 2 in a bull trend. It is important to recognize that when a trend is strong, you can enter at any time and make a profit if you use an adequate stop. Once traders see that a trend is strong, some traders do not take the first entries because they are hoping for a larger pullback, like a two-legged pullback to the moving average. For example, if the market just became clearly always-in long and the initial bull spike has three good-sized bull trend bars with small tails, a trader might be afraid that the move was a little climactic and decide that he wants to wait for a high 2 buy setup. However, when a trend is very strong like this, the first couple of entries are usually just high 1 buy setups. Aggressive traders will place limit orders to buy below the low of the prior bar, expecting any reversal attempt to fail. Once the market trades below the low of the prior bar, they will expect a high 1 buy setup to lead to at least a new high and probably a measured move up, based on the height of ...

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